Supply Chain Optimization – Why Healthy P&L solely depends on it?

Supply chain optimization is seen as an optimization of processes to ensure smooth operations and efficient distribution. Many forget to quantify the benefit of supply chain optimization financially. A supply chain project is worthy only if it can show monetary benefits that reflects on the company’s P&L (Profit and Loss Statement).

Every supply chain optimization activity has an impact on the firm’s financial status. I will explore the various concepts in supply chain optimization and where they have an effect on P&L. This exercise will make help see activities in terms of real benefits and thereby, the various heads in the financial statements.

 

Let’s see how supply chain optimization impacts the organization’s top line and bottom line.

 

BUSINESS TOP LINE

Various supply chain performance indicators contribute to the top-line:

  1. Lead time: It is seen as the health of the value stream. Lead time directly translates to customer service levels. If you don’t have an optimum lead time, it could result is lost revenue or add to the cost of inventory holding.
  2. Quality management: Quality management is not just a tool for customer satisfaction but it also helps cutting down returns which directly impacts revenue. In other words, if quality is well managed it will result in higher profitability.
  3. Customer Response rate: This is the rate at which the customer requests are responded to.

 BUSINESS BOTTOM LINE

  1. Inventory Turn Over: The overall supply chain has a lot of stocking points. In supply chain optimization, Inventory Management plays a vital role. The goal of inventory management is to have a leaner cycle inventory without impacting service levels, this means a direct reduction in carrying costs.
  2. Efficiency: The real due diligence of supply chain optimization is bringing in the rigour of execution and running a tighter operations. Supply Chain Optimization brings in efficiency at every phase of the supply chain – efficiency in sourcing, manufacturing efficiency, efficiency in storage, efficiency in packing, efficiency in preservation, efficiency in handling, efficiency in logistics and efficiency in returns.

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Blog by Nishant Bhansali from TAPMI, Manipal.

 

Read more case studies at Hesol.co.in/casestudies

Home page: www.hesol.co.in

 

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