Supply Chain and Shoring Up Shareholder Value Go Hand-in Hand

I am very positive about the upcoming year, especially from a supply chain point of view.

As the New Year approaches, many of you are thinking about ways to increase your company's shareholder value and enjoy a better year than you experienced in 2010. Well, the solution to this may very well exist within your supply chain.

The importance of leveraging your end-to-end supply chain to increase profitable growth has never been more apparent than now.

Take a look at the areas and actions that drive shareholder value within your organization and examine how these fit into your supply chain. Each of these areas should move your company toward profitable growth, margin improvement and capital efficiency.

I am starting a new five-part blog series that focuses on these elements and the supply chain mega processes -- BUY, MAKE, MOVE, STORE, SELL -- and how you can leverage the supply chain to increase shareholder value. (This blog sequence was brought about by a new white paper that we just released on the topic. Read more here.

To begin our series, I'll start with the first two supply chain mega processes: BUY and MAKE.

Buy

The buying process is often viewed simply as purchasing -- a necessity of business -- and, thus, its potential to impact margin is often not well understood. However, the procurement (buy) process (which is what we are talking about here) has a distinct role in securing products and materials as a critical integrated component of the supply chain, turning procurement into a significant cost and value driver.

The procurement process should be leveraged to deliver the best price, the best quality, the best availability, and an agile supply base throughout all processes. By establishing the right strategy, designing efficient processes, staffing the right skills, enabling with the right technology and designing an effective organization, procurement can achieve real value for your company.

Make

Next, we have the Make process. This is an area in which we can find significant improvements in the Cost of Goods Sold (COGS), and it should be a high priority for all companies. And wow, did you know that a 1% reduction can translate into a major improvement in gross profit margin?

You can reduce waste in the make process by executing lean tools with a focus on the overproduction, waiting time, transport, over-processing, excess inventory, unnecessary motion and defective products. By eliminating waste and improving the gross profit margin, the make process is an excellent driver for value.

So, that's the basics of buy and make. You can read more details about these processes in our new white paper: Leveraging Supply Chain for Increased Shareholder Value.

Over the next few weeks, be on the look out for the next four installments -- More/Store, Sell/Return, Speed and Productivity, and Tax-Effective Capital Efficiency.

I hope you enjoy exploring how your supply chain can lead to value and profitable growth in 2011.

Jim
Tompkins Associates