Key Takeaways:
- Gross margins are under pressure: Exploding inflation of component material costs (whether transient or not), record high transportation prices, scarcity of critical components, and wildly fluctuating demand patterns suggest 2022 will be just as difficult as 2021.
- Controlling COGS is one of the most important challenges for supply chain professionals.
- The fastest and surest way to improve operations is to accelerate the resolution of supply chain issues and disruptions. This reduces the level of unplanned expenses needed to mitigate the impact of these issues.
- Finding ways to avoid supply chain issues is the longer-term mandate for manufacturing organizations that want to be successful in the future.
Large numbers of issues and defects create significant levels of unplanned expenses such as increased expediting costs, overtime, express shipping, scrap, rework, and more. Depending on the complexity of your supply chain, these unplanned expenses increase the cost of goods sold (COGS) and can equal as much as a 5% unnecessary tax on the business.
Organizations using APT-SCIM to support Six Sigma continuous improvement projects have reduced recurring issues up to 50% and manufacturing disruptions by as much as 97%.
Resolving these issues also consumes valuable managerial time that could otherwise be devoted to innovative cost reduction projects and building stronger supply chain partner relationships. Resolving issues and limiting their impact on the organization takes great effort, coordination, and most importantly, time. Unfortunately, resolution timeframes are generally measured in weeks, not days or hours.
Leveraging a multienterprise supply chain issue management system like Agile Process Teams for Supply Chain Issue Management (APT-SCIM) to shorten resolution times significantly improves your ability to avoid unplanned expenses. Every day that is saved is one less day of expensive storage avoided. Every week saved enables you to take advantage of less expensive shipping alternatives. The list goes on, but the message is clear: Shortening the time to resolve issues saves money and reduces COGS.
Additionally, long resolution times, shipping delays, long lead times, and other business process defects are often buffered with high inventory levels to minimize impact on customers. This increases obsolescence, inventory carrying costs, and warehousing costs—all costs that increase COGS. While the inventory value reduction does not reduce COGS, it does free up working capital.
Longer term, the resolution history data collected in APT-SCIM provides a rich source of information to determine root causes. This supports data-driven continuous improvement programs such as Six Sigma, enabling teams to improve processes and eliminate recurring issues.
Organizations using APT-SCIM to support Six Sigma continuous improvement projects have reduced recurring issues up to 50% and manufacturing disruptions by as much as 97%.This level of improvement will enable you to chip away at that 5% disruption tax and reduce COGS.
And visit our Supply Chain Issue Management Resource Center.
