Im­per­illed by ris­ing sup­ply chain costs

Finweek English Edition - - Businesstrends -

CON­SUMER GOODS COM­PA­NIES have lost up to US$6bn world­wide over the past three years due to ris­ing sup­ply chain costs, a new Stan­dard & Poor’s 1200 sur­vey of 32 of the largest con­sumer goods com­pa­nies has found. Con­ducted by tax and ad­vi­sory firm Ernst & Young, the study found con­sumer goods com­pa­nies tended to fo­cus on sin­gle per­for­mance mea­sures – such as the cost of goods sold or the num­ber of days’ in­ven­tory tied up in op­er­a­tions – re­sult­ing in them ne­glect­ing other ar­eas of im­prove­ments in per­for­mance, such as cut­ting gen­eral sales and ad­min­is­tra­tive ex­penses.

Both cost of goods sold (COGS) and days in­ven­tory out­stand­ing (DIO) are key mea­sures of sup­ply chain per­for­mance, says Derek En­gel­brecht, of Ernst & Young South Africa. How­ever, the sur­vey found only 20% of the 32 com­pa­nies an­a­lysed per­formed bet­ter than av­er­age on both mea­sures. By con­trast, more than two-thirds (68%) per­formed be­low av­er­age on one of those mea­sures, with the re­main­ing 12% weak on both mea­sures.

The re­port in­di­cates the 32 com­pa­nies in the sam­ple could gain an ad­di­tional US$1bn by re­duc­ing in­ven­tory by one day, a stag­ger­ing $7bn by achiev­ing a 1% re­duc­tion in the COGS and $2bn by re­duc­ing the cost to serve cus­tomers by 1%.

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