Profitability: A Function of Supply Chain Network Performance

“We want to drive profitable growth” is what many CEOs and CFOs are saying today across all industries. But why is achieving this goal more challenging today for companies? What are some of the barriers companies must overcome to achieve profitable growth?

“With the complexity [brought on by e-commerce, omni-channel fulfillment, SKU proliferation, and global market expansion], the ability to control, manage, and predict the cost side of the equation and make trade-off decisions is becoming increasingly more difficult,” said Richard Barnett, Vice President of Industry Solutions at GT Nexus in a recent episode of Talking Logistics (Overcoming the Barriers to Profitable Demand Fulfillment). “Sources of competition are squeezing margins and profitability like never before,” he added. “This is obviously the ‘Amazon Effect’, which is not only impacting retailers but companies in other industries too.”

Part of the challenge is that companies are less and less masters of their own destiny today– that is, they’re more dependent on suppliers, logistics service providers, and other external partners to profitably meet customer demand. As Barnett sees it:

The shift is to think about things not only cross-functionally — between sales, merchandising, logistics, fulfillment, and sourcing — but also across a network because profitability is now a function of the performance and effectiveness of every link in the supply chain or every partner in the network [emphasis mine].

We see that 70-80 percent of the critical data and information that’s needed [to make smart and profitable decisions] actually exists in the network, not in enterprise systems. So there’s this inherent challenge around getting to a ‘single source of truth’ and then orchestrating together to make [smart and profitable decisions].

Having a detailed and accurate understanding of costs is a prerequisite to driving profitable growth, but many companies are falling short in this area. Why is that? Watch Barnett’s response in the short clip below where he highlights a couple of factors, including how standard cost accounting often provides an artificial view of profitability.

So, how are leading companies overcoming the barriers to profitable demand fulfillment? Watch the clip below where Barnett shares some customer examples, including Lenovo, Columbia Sportswear, and Williams-Sonoma.

I encourage you to watch the rest of my conversation with Richard for additional insights and advice on this topic. Then post a question or comment and share your perspective!