How Do Best-Performing Supply Chains Help Companies Excel?

Guest post by Joseph Roussel, co-author of Strategic Supply Chain Management, Second Edition.

Most companies know a badly performing supply chain can result in additional costs and a smaller bottom line. But leading companies know the supply chain can also be a source of lasting competitive advantage, and have taken steps to use it as such. They are very good at managing supply chain performance to support key business outcomes like sales growth and profitability.

What specifically do top companies excel at?

As discussed in the book, companies with the best-performing supply chains outperform others in their industry on key financial metrics. Compared with their industry competitors, leading companies’ average annual sales growth is approximately 50 percent higher, and profitability is about 20 percent higher. Top companies also demonstrate better asset turnover, with performance about 50 percent better than the industry average[1].

So how do these best-performing supply chains support such outstanding financial performance? Here’s a snapshot of their performance for four key supply chain metrics.

  • Better Delivery Performance Compared to Customer Request Date. Top companies schedule a higher percentage of orders in accordance with the dates requested by customers.
  • Greater Upside Production Flexibility. When demand suddenly jumps, leading companies typically respond faster than the competition, converting increased demand into production more than six times faster.
  • Lower Total Supply Chain Management Costs. When compared with industry averages, leading companies outperform median companies in supply chain management costs by more than 15 percent.
  • Lower Total Inventory. Top companies operate with only about one month of inventory, in contrast to other companies, which operate with up to three times as much. Managing with lower inventory levels can dramatically improve cash flow.

The size of the supply chain performance gap between leading companies and their industry peers varies across these different metrics—leaders outperform their competitors far more on inventory management than on cost, for example. Overall, however, the gap is substantial.

Where does your company sit on the performance spectrum? If your company does not have a top-performing supply chain, do you know what it would take to get there?  Strategic Supply Chain Management, Second Edition explores this question in depth with a focus on the five core disciplines needed for strategic advantage.

© 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved.

PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

[1] Shoshanah Cohen and Joseph Roussel, Strategic Supply Chain Management, Second Edition (McGraw-Hill, 2013), pp. 214-215.

Joseph Roussel was born and raised in the US. He has spent most of his professional life living in Europe and working with global companies based in Europe, Asia and the Americas. His focus is on operational strategy definition and implementation. He enjoys the special challenges of making change happen working with multi-cultural teams.

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