Inflation threatens supply chain performance

Supply chain costs are rising and, according to a report by one the world’s leading management consultants, it’s going to become increasingly challenging for companies to meet their productivity targets.

The Bain & Company analysis, reported in Sourcing Journal, suggested that several years of deflation has allowed companies to improve their margins, without significantly cutting costs.

But the Bank of England are forecasting endemic inflation, and rising supply chain costs are starting to erode earnings, warn Bain.

Illustrating the impact inflation has on supply chain costs, Bain said one technology company was able to cut costs in half between 2011 and 2017 thanks to a confluence of deflation, efficiency initiatives and lower freight rates, but now, with logistics costs and other input costs trending upward, the company is struggling to keep costs flat.

The challenge for supply chain managers in 2019, if they are to avoid the impact of inflation, is finding the opportunities to significantly cut costs, that will help them hit bottom-line targets.

In recent times effective managers have sought cost savings in procurement, manufacturing, transportation and warehousing. Doing things like removing unnecessary features in product design, deploying automation and limiting expedited shipping. But having optimised these areas, they will find it very difficult to find the level of reductions potentially required going forward.

“Leadership teams that already have implemented cost initiatives year after year in each silo have to redouble their efforts to generate new productivity gains,” Bain said. “It’s even harder to hit these efficiency targets in the face of rising inflation.”

“The MIQ Logistics, Vision 360º supply chain modelling service will give you unique insights, highlighting cost-saving opportunities you aren’t even aware of. You’ll be surprised at how much potential there is to cut costs.”

One thing many companies miss when looking for places to cut back, Bain said, are costs generated by multiple product variations.

“Sales and marketing teams often propose products with slight variations to address a specific market niche. But increasing the number of product models can trigger exponential growth in purchasing, manufacturing and supply chain costs, offsetting the benefits of increased sales,” Bain said.

Fewer variations in styles and SKUs could streamline costs across these functions, and shifting where finished goods are manufactured—particularly in light of current and impending tariffs and how that impacts costs—could also help by lowering inventory costs or decreasing freight.

Finding cost savings between business units, however, is difficult and often hampered by internal politics, which is why working with an external expert like MIQ Logistics is more effective, as they can be focused on finding the costs that are the biggest cost-saving opportunity for the business.

Individual business units often lack the visibility to see how costs flow across the organisation and where savings could lie. MIQ Logistics take an integrated approach to supply chain cost management proving the customer’s leadership teams with the knowledge they need to battle rising costs and keep productivity gains on track.

Vision 360º supply chain modelling