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Cost Center or Profit Center?

Apr 16, 2014

Some people’s first thought when they hear about supply chain is about money being spent. They imagine huge freight costs or big orders of materials and services. But that is an old concept. Seeing Supply Chain Management as a cost center is a thing of the past.

It is no easy task to grow and achieve increasingly better results. This is especially challenging in times of fierce competition or slow economy. But efficient supply chains are an important competitive advantage and may generate positive impacts on the companies’ final result. This happens because a company’s success is intimately related to its capacity to integrate relationships with business partners (clients and suppliers) in a mutually beneficial way. Well-managed supply chains allow the company to achieve final products with on- target costs and also ensure delivery to the right clients in the right volume at the right time.

It is no accident that supply and logistics teams are moving from back-office functions to the head office. This entails not only an executing role but active participation in the company’s decisions on strategy and business expansion. When the supply chain does not work correctly, this ends up compromising other areas of the company such as marketing, sales, production, finance and innovation. That is why there is a clearer change in orientation for supply chains, from cost to value.

There are many positive impacts to good supply chain management. Working capital is optimized and cost reduction in operations and purchases is reflected in better margins. Precision and agility in the managing steps like requests, quotes and orders make products always available and higher – cost emergency purchases less frequent. Good service level and deliveries always in time make for more satisfied and loyal clients. Finally, a better relationship with suppliers and close contact with them on innovations and improvements yield benefits to the purchasing company. It becomes easy to understand why supply chains are now being called value chains.