Supply Chain Optimization: Levers for Rapid EBITDA

Source: “Supply-Chain Optimization: Levers For Rapid EBITDA” by Oliver Wyman

Even though supply chains are at the core of moving physical goods within and between companies, they represent one of the largest unaddressed cost blocks. To decide whether a supply chain is reaching its full potential, Oliver Wyman explains in his article, “Supply-Chain Optimization: Levers For Rapid EBITDA,” there are eight key levers that should be addressed:

1. Demand forecasting. The goal of delivering the right product to the right place at the right time is achievable through accurate forecasting. Firms can maximize working capital through optimizing inventory, adjusting safety stock levels, and updating procurement practices.
2. Joint value creation with customer. When more information is exchanged between suppliers and customers, both sides can better understand their needs. Open and consistent communication allows everyone to further benefit from the relationship and streamlines processes.
3. Asset utilization. In a best-practice approach, optimal production balances customer demand against capital investment, transportation, and inventory costs. A surefire way to obtain balance is to extract as much value as possible from existing assets and strategically invest capital in the most cost-effective projects.
4. Sales and operations planning (S&OP). Balancing demand-and-supply also requires optimized production lines, clearly defined process steps, compliance by aligning processes with overall strategy, incentivizing staff through KPIs, and ongoing performance monitoring.
5. Inventory management. Optimizing inventory levels across regions can be a key lever for reducing working capital and can be achieved with an understanding of the required service level and cost-of-capital balance. Adjust product-level strategy and inventory rules based on seasonal factors to further reduce working capital.
6. Warehouse operations. Since warehouses are so often the bottleneck in supply chains, you can alleviate such issues with quick fixes: top off capacity through short-term rental space, increase picking efficiency through reorganizing floor-level processes, and install updated technology.
7. This is what puts all the other levers into motion. Assess best-practice options for routing and transport efficiency between the supply-chain network nodes and you’ll quite literally be on your way.
8. Network footprint. This will offer the biggest potential cost-cutting gains and it should be one of the earliest levers to address. Use customer-demand patterns and supplier locations to determine the optimal network setup and allow flexibility for changes in demand.

Evaluating and addressing these levers is a key part of the process to gain significant untapped earnings before interest, taxes, depreciation, and amortization (EBITDA) that is usually left on the table. Read the full report here.