The term ‘supply chain finance’ has different definitions on each continent. In Europe, it is often used to describe ‘tax efficiency’, or the design of the supply chain to reduce the burden of taxation of cross-border shipments. In many procurement organizations the term is often used to describe the use of favorable capital rates to finance downstream trade. In this study the focus is on the management of costs by either effectiveness of a Supply Chain Finance team or Supply Chain Center of Excellence, Sales and Operations Planning (S&OP) processes, Cost-to-Serve Analysis and Supplier Development efforts.
For the supply chain leader, managing costs is job one. It is easier said than done. The supply chain is a complex system with interrelationships between growth, inventory, cost and complexity. Cross-functional processes, organizational focus, and access to data are critical to align and maintain cost effectiveness in this complex system called supply chain. We term this model the Supply Chain Effective Frontier. This is shown in Figure 2. When companies operate on the Supply Chain Effective Frontier they maximize the value of the firm . We measure value by either Price to Tangible Book Value or Market Capitalization.
Figure 2. Supply Chain Effective Frontier
As will be shown in this report, managing costs is a struggle for most companies. While 88% of companies have implemented Enterprise Resource Planning (ERP), the hard work of process evolution and maturity continues. In this report we share the current state of supply chains in managing costs, and then take a look at the processes and organizational design factors to evaluate the impact on cost management.