How Supply Chain Management Can Contribute to the Achievement of Corporate Strategy
The goal of any corporate strategy is to give your company an edge over the competition. The business model defines how the product will be sold; the strategy defines how it will seek to be the most effective business model. One of the most important determinants of efficiency in business operations is the rate at which the business can move inventory, also referred to as inventory turnover. The function of inventory control begins and ends in the supply chain.
Net income is revenue minus all the costs and expenses associated with doing business. Almost all of these costs and expenses are affected by the supply chain, so the supply chain is most useful to any corporate strategy dealing with the reduction of costs. Reduction in costs allows the business to provide superior earnings. Warehouse automation and distribution optimization technology can directly and dramatically reduce the cost of goods sold.
Return on assets measures corporate efficiency. It is calculated by dividing net income by total assets. For example, if you have $100,000 in net income and $1 million in total assets, your ROA is 10 percent. The higher the ROA the better the business is at managing assets. Since inventory is generally the largest asset, supply chains that can get a better price on inventory can also turn that inventory into cash faster due to better pricing. Always having inventory in stock can boost sales and customer retention, which also affects ROA.
Working capital is at the heart of any business strategy. Inventory optimization reduces the number of days inventory is on hand and the need to carry significant amounts of safety stock. This reduces working capital requirements, which gives the company more short-term flexibility in business operations. There's also the opportunity cost associated with being able to invest working capital to other parts of the business.
The supply chain is directly connected to fulfillment and the customer experience. Every corporate strategy should include a plan to gain additional market share by improving the customer experience. Best in class order fulfillment can improve working capital and operational efficiency. It can also provide superior customer service through order delivery and status tracking. A transparent fulfillment system within the supply chain can amplify the effect of your corporate strategy on the business.