The supply chain can serve as a valuable lever to unlock capital and drive shareholder value, improve cash flow, and yield greater economic profits according to a white paper published by the University of Tennessee’s Global Supply Chain Institute (GSCI), titled “Driving shareholder value with your supply chain.”
The paper shows the inextricable link between shareholder value and supply chain performance, exploring specific areas where many organizations fall short, and highlighting success factors.
The research redefines the traditional goals of the supply chain by noting while cost reduction is often a result of optimization, it is not always the main goal. The paper describes the process of Total Value Optimization (TVO), a methodology which delivers the greatest value to all parties in the end-to-end supply chain at the lowest cost to business.
“Total Value Optimization goes beyond the traditional cost drivers of supply chain management,” said Simon Knowles, CMO of Maine Pointe. “Rather, it focuses on finding and accelerating the value drivers for cost, cash and growth across the entire buy-make-move-fulfill supply chain.”
Specifically, the white paper revealed:
- Few companies have a formal process for managing risk in their global supply chains despite the fact a catastrophic supply chain event can have a major negative impact on shareholder value.
- Only 16% of firms surveyed have a multi-year, documented strategy for achieving supply chain excellence.
- After the credit markets froze in 2008, some firms realized they could free up cash internally without having to go to banks by using the supply chain as a lever.
- Total Value Optimization (TVO) finds value drivers for cost, cash and growth, then creates an action plan to achieve them by leveraging the end-to-end supply chain.
- Some business-to-business (B2B) CEOs may have a blind spot to how the supply chain impacts share price performance and may be falling behind progressive competitors.
The research illustrates the TVO framework being used to find value drivers for cost, cash and growth to produce the highest availability with the minimum cost and capital investment.
In one example, a global manufacturer achieved 80% growth in volume, a 22% margin enhancement, and a working capital reduction of $30 million by reconfiguring the distribution network, building a more collaborative relationship with transportation providers, and facilitating negotiations between the company and short-list service providers.
“Understanding how all the pieces fit together as a whole is essential to supply chain success,” said J. Paul Dittmann, PhD, author of the white paper. “Supply chain integration is an increasingly essential component of shareholder value, and to achieve that, supply chain leaders need to speak the language of the Board of Directors and the executive suite and show how supply chain excellence enables revenue generation and generates new cash flow.”
The white paper is authored by J. Paul Dittmann, PhD, University of Tennessee, and Dan Pellathy, PhD, Grand Valley State University, with contributing editor Ted Stank, PhD, University of Tennessee. “Driving shareholder value with your supply chain” is the third white paper in the GSCI’s Supply Chain Strategies Series. The first white paper, “ End-to-end supply chain collaboration best practices," focuses on cross-functional collaboration, identifying collaboration as a key element in creating a competitive advantage. The second paper, “ Supply chain integration strategy," described how to derive value from a supply chain integration initiative.