How Supply Chain Officers Can Drive Margin Expansion

This is an excerpt of the original article. It was written for the July-August 2019 edition of Supply Chain Management Review. The full article is available to current subscribers.

July-August 2019

If you’re a long-time reader of Supply Chain Management Review, you’re familiar with Larry Lapide’s “Insights” column. Typically, Larry is writing about the many facets of planning, but occasionally, he takes on a provocative topic. One year, he questioned whether it was necessary to be a Top 25 supply chain leader, especially if in your industry, good enough gets the job done.

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Companies today face unprecedented disruption across all business functions. Whether it is changing business models, the impact of digital, increased M&A or pressure from activist investors, disruptors are compressing operating margins and are making scalable, profitable growth and consistent competitive agility much harder to achieve. Addressing these challenges and driving margin expansion requires a focus on cost optimization, growth and operating model change. Supply chain leaders are often on the receiving end of these cost reduction programs, or initiate cost optimization activities such as strategic procurement or supply chain optimization. Therefore, it comes as a surprise that supply chain leaders are rarely at the table when organizational leadership is discussing growth or operating model change. Given their strategic role in an organization, how can supply chain leaders do more to proactively drive change and growth, in addition to leading cost-cutting initiatives?

Winning through comprehensive margin expansion

In today’s world, shareholders and stakeholders expect winning companies to be growth-led, nimble with their cost base and committed to scalability and trust. Accenture has developed a “Competitive Agility Index” to measure how effectively organizations are executing against these three dimensions. The Agility Index identifies these as leading indicators of performance, given their bearings on top and bottom-line financial results.

Accenture Strategy‘s 2018 research analyzed over 7,030 companies across 20 sectors and found that more than half (54%) of the companies we examined experienced a material drop in trust at some point during the past two and a half years. A material drop in trust is defined as a drop of 5% or more. The average company that experienced a drop in trust with their strategic partners also saw their Competitive Agility Index score decline by two points. There is a direct negative correlation between the Competitive Agility Index and revenues, meaning that when a company’s score drops in the Agility Index, their revenues are at stake. Of the 54% of companies in our sample that experienced a decline in trust, a collective $180 billion (US) in revenues were jeopardized, based on available data, compressing their top-line margin growth.

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