Dr. Stephen Timme, FinListics Solutions
Gene Tyndall, Tompkins International & Monarch X
Traditional views of the primary role of supply chain management include one that slashes logistics costs and relentlessly optimizes inventory. According to a recent survey of supply chain professionals by FinListics and Tompkins International, the top priority for many supply chain organizations is driving top-line growth. Sure, operating expenses and investment in supply chain management assets will always be important, but they’re increasingly being evaluated in the context of helping to achieving enterprise-wide goals like growing revenue in ever-increasing competitive markets.
Why the change? We all know the stories about disruption in industries that has caused companies to become more customer focused and for customers to expect more in terms of choices, ordering when and how they want to, quality, and speed of delivery. To accommodate the shift in customer expectations, the supply chain has transformed by becoming more integrated not only with other functions inside the company, but across suppliers and customers.
To illustrate an opportunity for supply chain management to drive top-line growth, we’ll use an example from the Consumer Products (CP) industry. Our experience shows that the opportunities are similar across many industries. Over the last five years, median average annual revenue growth for CP has been around 7 percent, while top performers are closer to 13 percent. A company growing at 13 percent per year over the last five years has over 30 percent more revenue. The gap between the median and top performers does not always represent a gap in operational performance. Some of the difference simply is explained by some top performers engaging in more mergers and acquisition activities. Nonetheless, experience shows that where there’s a gap, there are opportunities for improvement.
Figure 1 shows a comparison of some the more important performance indicators for revenue growth. The top performers are 40 – 50 percent better for New Customers, Cross-sell/Up-sell, and New Products and Services. The customer churn rate is over 100 percent higher for the median.
Figure 1 – Revenue KPIs
What are the annual top-line benefits from becoming a top performer? Figure 2 shows the total benefit is over $200 million per $1 billion in annual revenue, closing the gaps add 20 percent more to the top line. A more integrated supply chain likely is not going to completely close these gaps; there are other factors such as the ease of doing business, product quality, and product success rate. But experience shows improved supply chain management can certainly deliver significant benefits.
Figure 2 – Median to Top Performer Annual Revenue Benefits
Figure 3 shows the relative performance of the median compared to the top performers of some of the SCM areas often targeted for improvement to drive higher top-line growth.
Figure 3 – Median to Top Performer Relative Performance
Stockouts has one of the largest gaps. Closing this gap would add $10 million in annual revenue. Another area with a significant gap is customer order cycle time. The top performers are over 40 percent faster. The median’s longer order cycle time has dire consequences for top-line growth; outcomes can include ordering from competitors, smaller basket size, higher returns, not to mention a lower Net Promoter Score. Pick-to-delivery cycle time performance provides additional insights into the median’s longer customer order cycle time. The top performers’ pick-to-deliver cycle time is almost 60 percent shorter, no doubt proving an advantage in growing the top line. The good news is that the percentage of orders delivered on time are almost identical.
To learn more, listen to our free webinar Driving Growth Through Supply Chain Strategy that will be conducted on December 6, 2017 at 2:00 PM. Click HERE to register.