Updated: Sep 23
Supply Chain Management is not better than marketing, but I’ll make the case why supply chain management should not be overlooked. For many businesses and investors, revenue growth is much more attractive than cost cutting. It adds power to the organization and has a certain prestige to it. As a result, they focus on increasing revenue and market share. However, if you were to cut costs through a successful sourcing program or create efficiencies in operations and logistics, it would be much harder to achieve the same benefits to your bottom line by increasing revenue.
Here is a simplified example to illustrate:
You currently have a net margin of 5% on revenues of $100,000. It would take an additional $10,000 of revenue to have an equivalent impact on net profit for every $500 you save on the cost side. (5% of $10,000 translates to $500 in net profit). It would take a very successful sales and marketing strategy to convert $500 of spend into $10,000 of revenue even if you consider long-term gains such as customer lifetime value and brand recognition.
There are many situations where your strategy should be on revenue growth. Entering a new geographic market or introducing a new product are two examples. But even if your business is running a revenue growth strategy, you will still need an effective supply chain to support the revenue or you will quickly find customers leaving you. Alternatively, you can pass off cost savings to your customers to grow your volumes. A strong supply chain can be leveraged to create competitive advantages in any business strategy. There are many well-known companies that derive their success from supply chain management that many people are not necessarily aware of when they transact with them. For example, Dell used a pull strategy rather than a traditional push strategy to become a leading technology company; H&M and Zara created the fast fashion category that shook the apparel industry. These companies would not have been successful without innovative supply chain management.
From a macroeconomics perspective, GDP per capita is often used to measure quality of life. I remember from my old textbooks that capital investment and technological development are ways that grow GDP per capita. Supply chain and operational efficiencies can serve the same purpose. Sometimes these efficiencies are achieved by capital investment and technological development but many efficiencies can also be achieved with process improvements with existing assets and technologies. If this can be done, GDP per capita can increase with less upward pressure on inflation which is currently a serious concern for most households.