10
10
SUPPLY CHAINS TO ADMIRE | 2025
Companies Do Not Have Unlimited Potential to Drive Improvement
A common mistake is assuming supply chains have endless potential and that continuous improvement programs will drive substantial improvement. What may be surprising to many leaders is the realization that a continuous improvement program in an industry hammered by market factors may shelter the company from deleterious market impacts, helping
efficient frontier . The reason? Many misinformed business executives believe that the most effective supply chain is efficient, operating at the lowest cost per unit. As seen in this report, focusing solely on cost will throw the supply chain out of balance, sub-optimizing market capitalization. Our research shows that only 20% of volume can be managed effectively with a focus on cost.
the company to tread water. As a result, a strong, continuous improvement program may help a company to report consistent earnings in a declining market.
Each industry has a unique pattern. For the period of this report, 54% of industries experienced a decline in operating margin, 82% saw a decrease in inventory turns, and ROCE declined. Industry growth potential declined in 40% of industries. So, a company trying to drive continuous improvement must first understand the market's headwinds to benchmark what is possible. For example, in the chemical industry, as
DEMAND SHAPING The initiation of programs to increase baseline lift including price management, promotinos, distribution incentives, rebates, advertising, and new product launch.
Programs must be aligned to a balanced scorecard to drive value and continuous improvement. Optimizing costs within a function may reduce the function's costs but increase total costs. Likewise, reductions in the cost of goods may not translate to margin improvements. Companies that drive improvement best take a holistic approach while aligning to what is possible based on industry potential. Supply chains do not have endless potential. In this research, the boundaries or trade-offs between the metrics are termed the effective frontier. We are deliberate in not naming this the
shown in Figure 2, margin and inventory turns have fallen. While the average is 17% operating margin and 4.97 inventory turns, it is important to understand the pattern. (We openly share industry patterns to help business leaders understand industry potential here .)
Made with FlippingBook - PDF hosting