Is Your Supply Chain a Cost Centre or a Value Creator?

September 28, 2017

Written by Supply Chain Executive Mike Mortson. This guest post first appeared on Mike’s industry blog, Supply Chain Game Changer.  

The Supply Chain function within your company has many responsibilities.  From planning to negotiating to buying, from moving goods to processing goods, and from managing data to managing inventory.  These responsibilities are at the core of making your company run.

Yet often the Supply Chain is undervalued.  While every function must help your company grow and prosper when the heat is on uninformed Executives can view Supply Chain as merely a Cost Centre.  As such there can be unrelenting pressure to continue to cut costs.

Why is Supply Chain often undervalued?  And how do you increase the value of Supply Chain in the eyes of your Executives and other functions?

Pressures for Cost Reduction in Supply Chain:

Certainly there are many factors which can cause a company to apply intense pressure on Supply Chain, as well as other functions, to reduce their costs.  Financial losses or declining profitability certainly make cost cutting a priority.  A poor or negative cash position can cause Executives to look at how to reduce expenses to survive.  And competitive pressures and benchmarking results will also add to the need to reduce costs and/or be more productive.

Additionally if your Executives do not have a background in Supply Chain it is easy for them to under-appreciate the value Supply Chain creates.  In many companies the Executives may be Sales and Marketing focused, Design focused, or Finance focused.  In those situations it can be an uphill climb to get Supply Chain to have an equal seat at the table.

And the reality is that Supply Chain must be cost-effective.  Whatever your Industry you should be able to make comparisons to competitors, do benchmarking, and even compare yourself on key metrics across industries.  Lean for instance is equally applicable in Supply Chain as it is in Manufacturing or anywhere else.

Promoting Supply Chain Value:

Regardless your situation is there is merit in creating and promoting the value that can be delivered by a highly effective Supply Chain organization.

The Supply Chain team must always meet the demands and pressures that the organization demands.  But ensuring that the company understands the value that Supply Chain delivers will help you and your company prosper.

Now the role of Supply Chain is certainly different from one industry to the next.  The Supply Chain in the Financial sector is different from Manufacturing and Distribution for instance.  But there is a role for Supply  Chain in every company.

Here are some areas where Supply Chain delivers real and indispensable value to your company:

 1. Cash Cycle Management

The Cash Cycle is a function of the days of Accounts Receivable, Accounts Payable, Inventory and Capital Expenditures.  The Supply Chain is directly responsible for the payment terms for Accounts Payable, Inventory (this does vary between companies), and even the negotiated terms for Capital purchases.  Supply Chain has a central and pivotal role, if not the controlling responsibility, for Cash Cycle management.

2. Delivery

From the inbound perspective he Supply Chain team typically procures raw materials, expedites their delivery.  The Supply Chain arranges for the appropriate logistics, and negotiates terms and conditions with Suppliers, audits Suppliers, and deals with quality strategies and issues.

From the outbound perspective the Supply Chain also arranges logistics and delivery.  In areas such as E-Commerce the Supply Chain is instrumental in arranging delivery strategies such as Same-Day delivery and Drop Shipping, along with reducing freight costs to support Free Shipping services.

 3. End to End Supply Chain Visibility and the Internet of Things (IoT)

The Supply Chain is central to having the complete visibility required to run any company.  From product data to forecasting to customer orders to ERP parameters to  ERP output to supplier status to inbound delivery to manufacturing/processing to outbound delivery to distribution to inventory positioning to outbound delivery the Supply Chain is central to all of this activity.

The ability of the Supply Chain to manage all of this data, provide the analytics, inform the requisite decision-making and drive company performance is an absolutely enormous responsibility.  The exponential growth of E-Commerce, the Internet of Things (IoT), Industry 4.0 and Artificial Intelligence (AI) make Supply Chain a Strategic imperative in any company.

 4. Cost and Profit Management

Depending on your Industry the range of costs in Supply Chain can be enormous.  Raw Materials, Buyers, Planners, Product Data Management, Commodity Managers, Freight and Logistics, Distributors, Suppliers, Systems (eg. ERP, TMS), and Indirect Goods and Services all represent enormous costs.  I have worked in Industries where this can represent over 80% of the total cost in running a company.  How important is Supply Chain now?

Further your Financial model may represent more opportunities for Supply Chain to contribute value.  Supply Chain can low costs and increase pricing and margin.  The ability of Supply Chain to reduce Inventory carrying costs or Accounts Payable levels can reduce the need for a company to borrow money and lower interest costs also improve profitability.

 5. Competitive Capabilities and Greater Customer Propositions

Your Supply Chain Value can make the difference between you and your competitors.  In E-Commerce a reliable, rapid, low-cost delivery capability can make the difference between enormous growth or declining market share.  The Supply Chain’s ability to provide advanced visibility and analytics, improved cash management can distinguish your company in outsourcing services for instance.  Depending on what you do your Supply Chain can enable growth and prosperity through its ability to provide outstanding capabilities.

 6. Brand Promotion and Protection

As it is said so much revolves around cost, quality and delivery.  The Supply Chain Value is central to all of these business essentials.  A poor functioning Supply Chain will be quickly recognized as compromising a business’ ability to survive.  A well-functioning Supply Chain can set you apart from your competitors and endear you in the eyes of your Customers, Stakeholders, and Employees.


Supply Chain is no longer just the organization that buys parts and arranges for deliveries.  Supply Chain is central to the present and future of your company and it’s success.  Those companies that recognize this will be better for it.  Those that do not recognize this will become the prey of their competitors!

So how is Supply Chain Value viewed in your Company?  Is it respected already or do you have work to do to raise the profile of Supply Chain? And what other areas do you see in which Supply Chain delivers value?


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