March 31, 2021
You hear all the time about “the cost of doing business.” These costs do exist: operating capital, taxes, commercial credit, manufacturing yield losses, etc. Depending on the nature of your business, you can actually derive the number in a pretty straightforward manner. But many fail to acknowledge the fact that sometimes the “cost of doing business” is actually the cost of inefficiency. And one aspect of your business that makes this truism so apparent is your supply chain.
How do I know? Because after helping hundreds of the world’s leading businesses replace manual supply chain-related processes with automation, I have found that these seemingly inevitable costs almost invariably fractionalize—or disappear completely. Here are a half-dozen commonly accepted “cost of doing business” categories you can help get under control through a more connected and collaborative supply chain.
To illustrate this hidden value, consider just one small supply chain function: order entry. Say you have a terrific team of customer service representatives, and each can manually enter a 100-line order in just 30 minutes. They each make $40 per hour. So you’re paying $20 per entered order at 16 orders per day over a 261-day work year. For a staff of ten, that’s $835,200 annually. By automating order entry, it’s possible to get that entry time to just four minutes. That would mean processing over 100 orders daily at just 33 cents each, freeing the rest of the team to do more strategically important things.
To continue our example from the previous point, what might this team be able to do if they weren’t tied up entering orders all day long? Well, chasing new business for one thing. After the automation example above, now the rest of the staff can either chase new leads or engage in up-selling or cross-selling. This hidden value goes beyond simply saving money on the performance of a function to generate additional revenue the business wouldn’t have had otherwise. And this does not just include selling; it could mean finding more efficient ways to handle a variety of business functions, sourcing new suppliers with better deals, creating new products—a myriad of projects with greater strategic value than mere order entry. Millions in value could be created by getting your team out from under these manual processes.
When it comes to operations, sometimes things just do not go as planned. But you would be surprised how much you can save by automating out operational risk. Will inventory match your forecasts two quarters from now? What happens if that mission-critical supplier files for Chapter 7 overnight? Did the storm in the Gulf impact that shipment you sent to your most important customer? If managed manually, each of these operational risk scenarios represents a significant cost to your business. And most of them could be assuaged through the automation of processes such as inventory management, supplier sourcing or carrier visibility.
A post-COVID-19 study by Accenture reported that around 55 percent of companies plan to downgrade their growth outlooks, with 94 percent seeing supply chain disruptions from the pandemic. Supplier disruptions have historically been rare, and while organizations know they should be planning for contingency sources most supply chain optimization efforts in the past were geared toward creating efficiencies. But as the pandemic has reminded many enterprises, managing supplier risk is important. That’s why as of February of this year, 87 percent of supply chain professionals were planning to invest in some kind of initiative to improve the resilience of their supply chain.
The beautiful thing about capitalism is that it rewards strong performance. Adam Smith’s invisible hand can sting terribly, however, when your business loses a customer over a preventable mistake. Some customer turnover is inevitable, but systematically losing business because of poor performance is, at some point, not the cost of doing business. It is the cost of a broken process. And from real-time digital collaboration to proactive inventory management or real-time delivery alerts, automation can help your organization improve the lifetime profitability of each and every customer.
Unnecessary rush freight costs. Restocking. Running the order through again the right way. The average cost of rework differs widely from industry to industry, but it is usually significant—and in large part avoidable. Rework can be triggered in a number of ways, from inaccurate ordering to flawed fulfilment or QA/QC oversights. According to an article by Occupational Health & Safety earlier this year, more proactive quality control initiatives alone can reduce unplanned scrap by as much as 69 percent. Automation can shore up all of these processes and help cut a significant amount of this so-called cost of doing business.
Another “cost of doing business” is not quite allocating your capital in a way that’s completely optimized. People with manual processes do what they’ve always done—use their best judgement, run the numbers in a snapshot fashion, make some decisions and then hope for the best. Digital supply chains, however, not only give you the tools to deploy capital where it can deliver the best returns but also make improvements on your behalf. A 2016 study by the Boston Consulting Group showed that organizations on the forefront of supply chain digitization realized 30 percent better working capital reductions and, and saw operating margins between 40 and 110 percent higher than those with a less connected supply chain.
So the next time your team is reviewing KPIs and you come across a pain point many would chalk up to merely the cost of doing business, take a step back. Is it really an unavoidable operational expense? Or is it time to take a closer look at automating mission-critical supply chain functions?