On Demand News: 04/04/18

You Are What You Measure

04 April, 2018 // Recently, supply chain thought leader Lora Cecere examined the difference between what she calls “financial re-engineering” and true supply chain improvement in her Supply Chain Shaman blog. It’s worth a read if you need to brush up on supply chain-omic theory.

Financial re-engineering, Cecere explains, “focuses on the optimization of short-term results, which are usually based on a functional analysis of source, make or deliver.” That’s a problem, she says, because so few consultants actually understand the complex and intertwined nuances of those areas.

The goal for manufacturers, according to Cecere, should be to drive year-over-year gains in market cap. Instead, many companies focus on functional metrics like the cash-to-cash cycle (days of receivables + days of inventory - days of payables).

That can be goosed by extending payment terms down the supply chain. But as that strategy proliferates out through supply tiers, the manufacturer’s vendors become strapped for cash. Overall risk and supply chain fragility increase—and the problems worsen as manufacturing becomes more complex and more global.

When Cecere and her colleagues rank supply chains, they focus instead on return on invested capital (ROIC). Better ROIC comes from improving inventory turns and operating margin. Not surprisingly, her list of winners looks a lot different.

At Morgan, we agree that the best inventory management solutions don’t create winners and losers among an OEM and its partners. That’s why we developed Inventory On Demand, a true first-of-its-kind outsourced inventory ownership model. By relieving the pressure associated with capital that’s tied up in goods, we help clients make more efficient transportation and logistics decisions. We allow them to buffer goods for continuous availability—even across reporting period end dates. And, of course, we provide a strategic partner for analytics and process transformation—not just financial re-engineering.

Naturally, every supply chain is unique. So, Inventory On Demand isn’t a one-size-fits-all solution; we have a variety of models that include virtual ownership, management of existing suppliers and full Morgan execution. We’d love to find out more about your specific needs and see if there’s a match.