Three Performance Lenses for Balancing Supply Chain Cash Flow and Cost

Editor’s Note: Paul Lord is Sr Director Analyst, Gartner Supply Chain Practice

As organizations continue to evolve operations for a post-pandemic world, a shift is underway from a focus on financial liquidity - that was critical during 2020 - to a renewed commitment to profitable growth. As part of the transformation, supply chain leaders must give consideration to developing a comprehensive approach to optimize supply chain performance.

To achieve and sustain performance, short- and long-term goals need to map to an overarching aspiration for optimizing total performance. This aligns key stakeholders around both design choices - physical, commercial, organizational - and operating decisions required to efficiently fulfill demand with reliable product supply and effective service delivery.

Supply chain leaders must focus on obtaining clarity around business imperatives and alignment on realistic performance goals. Complex demand signals, product portfolios and supply constraints require more than simplistic trade-off discussions that promote conflict and negotiation rather than enabling optimization.

To maximize performance, supply chain leaders must apply and balance three performance lenses across distinct time horizons:

Lense #1: Improvement of cash flow

To begin, supply chain leaders must recognize that fixed costs are sunk in the near term. With this realization, they should turn their attention to operating cash levers to capture variable margin, control working capital and manage discretionary spend. Leaders need to recognize that in most cases network design choices and structural costs are out of scope for near-term improvements to cash flow.

Lense #2: Alignment of network improvements

Alignment across both the key stakeholders within an organization and the extended supply network is essential to achieve optimized performance. Misalignment will create constraints - physical, economic and virtual - that impede performance over time as market and organizational dynamics evolve.

Lense #3: Achievement of value-driven operating model

Long-term supply chain growth thrives on increased agility and collaboration to enable superior total performance, including joint value with customers and suppliers. Innovation of products and operating models may include offering integrated solutions customized for specific customers or market segments. Over time, investments in digital technology accelerates the speed and precision of decisions and execution, reducing the need for inventory and eliminating the cost and errors of nonproductive manual activity.

The events of 2020 brought into focus the complexity of managing supply chain performance. As we look ahead, it’s essential that supply chain leaders help their organizations acknowledge and find the right balance across these three lenses, with appropriate changes in emphasis through economic cycles and in response to events.

SC
MR