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Why You Should Invest in Your Supply Chain

ETCH Sourcing

September 11, 2017

Disclaimer: in this article, we use supply chain in the broader sense – including sourcing – stay tuned for the specific article on the topic of the specific role of sourcing in supply chain!

 

The basic functions of commerce can be summarised in two primary activities: Buying and Selling. We’ve all heard the age-old equation –  $1 sold is only $0.30 in revenue after overhead, cost of goods, and taxes are paid. On the flip side, $1 saved on your cost of goods or services is $1 directly back into your free cash flow for investment.

 

So why then, do mid-sized organizations continue to pour every extra headcount they have into sales while putting supply chain requests for sourcing headcount, training, and tools as a secondary priority?

 

Answer: the risk to reward relationship is instantaneous

 

Most sales organizations function under the following model: Base Salary + Variable Sales Bonus

 

While Base Salary provides some level of sustainment, the Variable Sales Bonus is the higher share of the pay structure – so organizations think that they know they’re getting their money’s worth as sales people are paid on performance.

 

On the other hand, supply chain is often seen as ‘good enough’ if it can sustain the base functions and keep the wheels turning – so to speak.

Today we want to share three reasons why we think you should invest in your supply chain:

  • They are a key support function

  • Strong supplier relationships enable growth and strategy

  • Strategy vs. Tactics

 

 

Supply Chain is a Key Support Function to Your Organization

Ever hear the saying a strong house is built on strong foundations? Your supply chain is responsible for ensuring your products arrive on time, for making sure your teams are supported when something breaks, for ensuring everything from that critical component to your toilet paper is in stock and ready when you need it. However, to provide you with that level of support, they need to have an equally solid support base of contracts that clearly outline expectations and layout the groundwork for suppliers to engage and interact with your organization.

 

By investing in your supply chain’s sourcing capabilities, you invest in a solid foundation that will allow your organization to go further (sales teams can sell knowing that they won’t face a stock out, operations will have support if equipment fails, finance will benefit from clear invoicing…the list goes on). In addition to all of that, sourcing also frees up your expert teams from the clutter – engineers can focus on being engineers, rather than trying to negotiate off the side of their desk, knowing that experts who have reviewed thousands of contracts are putting the proper clauses in place.

Strong supplier relationships enable growth and strategy

Do you know who talks to your competition and understands what’s happening in the industry more than anyone? Your suppliers. Chances are, you share more than 80% of your supply base with your closest competitors, and your suppliers are always evolving and growing their products just as you are.

 

Who gets access to the latest and greatest advancements, gets input into the next development, and gets preferential treatment in the case of a stockout is often determined by the strength of the relationship the supplier has with the client.

 

Strategy vs Tactics

“The economy is hard, we need to be more strategic with how we spend” – most supply chain organizations have heard this at least once or twice in the last three years. The problem remains that although this request is made, there is no additional investment made to alleviate the burdens of day-to-day tactical problems. How then, can teams be strategic while they’re buried under a torrent of urgent requests, problems and expectations- leaving very little (if any) time to take a step back and look at the greater picture?

 

So you now have three compelling reasons to invest in your supply chain…

And maybe that’s enough- but in case it isn’t, here’s one more – your supply chain CAN be performance based.

At ETCH we firmly believe we should link our success with that of our clients, to put our money and resources behind what we say. That’s why we developed the zero-risk model for our clients, where we’re not paid until we execute strategies and deliver firm, tangible value for the teams we work with.

 

Our mission is to allow you to invest in your sourcing supply chain and see the results- all without the barrier of upfront cost.

 

Contact us at contact@etchsourcing.com for more information!