Important Questions to Ask in an E2E Supply Chain Expense Review

You survived the most challenging supply chain disruption in recent history -  as Elon Musk so eloquently put it - "The supply chain stuff is really tricky!” Now is the time to take advantage of the precious calm seas, as the most dire effects of the pandemic are in our rear view but your organization still remembers the effects of disruption.

The last few years certainly brought awareness of "the supply chain" to the general public. Supply chain became visible to everyone: as a consumer we saw the empty shelves, we heard the news stories about 100's of ships in port not being able to land, the rail yards that were plundered, and the price of what was available to purchase sky-rocketed, if your product arrived at all. It is clear now, not only to CFOs and CEOs around the globe, how severe the impact of disruptions in this area can be.

While an optimized supply chain involves many more components than cost, it is a great starting point for a supply chain review. Supply chain expenses can be a very large component of your final product cost. Given that fact, it is surprising how few companies actually look at the supply chain as a key competitive advantage and spend time and effort to regularly review and improve on the network. 

Important questions to consider in your end to end supply chain expense review:

Are current inventory levels tying up too much of your cash flow?

It’s important not just to look at inventory levels in your warehouse management system. How much inventory is tied up in factory warehouses, on boats or on trucks, in warehouse yards, or at your retailers? If the market landscape changes fast, do you know where your inventory is and the overall liability of that product?

Do you understand and feel in control of the landed cost of your product(s)?

If we’ve learned anything over the last three years, we’ve learned the complexity and the variability of the total cost of the supply chain. Costs fluctuate frequently, including transportation costs at each leg in the supply chain, customs duties and tariffs, and labor costs. Many companies lack comprehensive data on all cost components, such as transportation, warehousing, inventory carrying, and compliance expenses - especially applying them to products correctly for accurate decision-making. 

Is your trade compliance program optimized and a management priority?

Not having a compliance program optimized can lead to increased costs - both known and unknown. Some of the clear costs can be financial penalties and fines, the cost of legal actions, increased shipping and holding fees, and additional administrative burdens, such as manual paperwork, data entry, and record-keeping. But some of the hidden costs? You might lose access to markets, face increased scrutiny, or even have reputational damage. Often, roles and responsibilities related to trade compliance are not clearly defined and understood, which creates both risks and missed opportunities for savings. Optimizing and managing your trade compliance program is the way to minimize overall cost and risk.

Do you have a supply chain partner review program in place? 

Without a regular review program, there is a higher likelihood of engaging with partners that are inefficient, unreliable, or charge excessive prices. You may face delays or be exposed to compliance and regulatory risks. If a supply chain partner is non-compliant with regulations related to product safety, labor practices, environmental standards, or other requirements, it can result in fines, penalties, legal actions, and reputational damage to your company. A review can also re-iterate to your partners what is important to you and make an existing good relationship even better. 

If your organization treats supply chain as the “black hole” of costs, it may be time to call in a team that can diagnose your issues and help you set up processes to give it the attention it deserves.