Shortages of cash, reduction in labor, and breakdowns of entire industries send a clear message to leadership: cash flow reigns supreme, and supply chain is its humble servant. But it is not a typical master-servant relationship. Cash flow and the supply chain are more like twin souls -- tightly linked, and destined to sink or swim together.
Slashing pricings in order to compete is a common trend today in many industries. But if a company lowers prices -- and thus margins -- to increase or maintain sales, without adjusting and leaning the both the cash and physical processes that are essential to the supply chain, it may be living on borrowed time. The order to cash cycle becomes critical, and must be shortened to offset the decrease in margin.
And yet, overages in sales can actually reduce margin if production slips in China and goods need to be expedited in order to meet a customer's service level agreements. We all know freight can literally destroy all margin. With the increased pressure on supply chain efficiency, operations must align in lock-steup with finance to understand the implications of short and long term risk, allowing supply chain to do what it does best -- serve to increase cash flow.
New Opportunities with Your Suppliers
Globally, suppliers are urgently looking for new sources of income. his is a manufacturer's golden opportunity to form favorable new relationships with suppliers that have not been available before. These relationships can create a new competitive advantage, by providing new services and options to the manufacturer. If a manufacturer can literally prevent smaller suppliers from going out of business, there is new opportunity for loyalty and win-win relationships that can withstand the test of time. Conversely, current market conditions can benefit resourceful companies who can find new ways to offload excess inventory There can also be new opportunities for financing that create better options for both buyer and seller.
Focus on What You're Best At
Manufacturers with multiple facilities and disparate systems are wise to consider the short and long term implications of consolidation. However, consolidation offshore to take advantage of cheaper labor and materials should not be the obvious conclusion that some would believe. We have found that often when we analyze the true cost/benefit scenarios of moving or consolidating manufacturing, logistics, warehouses or distribution centers, we weigh variable what-if scenarios that include labor costs, product range, tooling, transport, storage, culture, and other factors that are not so obvious on the surface. Sometimes, "offshore" can be "off course."
It is important to remember that companies can more easily save money and improve throughput by reengineering traditional operational models. Two solutions that we commonly evaluate in order to facilitate the supply chain support for order to cash, are Shared Services (SS) and Business Process Outsourcing (BPO).
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