Imperilled by rising supply chain costs
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%.