Decisions regarding the entire supply chain are most often made by a team of managers from key enterprise management areas – sales, production, finance, and logistics (understood as the area responsible for purchasing and material management, warehousing, transport and forwarding, and distribution). A broad spectrum of issues – product design and development according to customer requirements, managing the product offering in served markets, securing sales through production and supply planning, material purchasing, cooperation with suppliers and subcontractors, warehouse and transport operations, cost analysis and budget adjustments, working capital planning – requires constant coordination of many decisions, alignment of plans, and continuous monitoring and correction of actions. Teamwork and the integration of activities within the chain are an inherent factor for shared success. Decisions regarding products significantly impact processes throughout the entire supply chain. Thus, interconnected decisions that shape sales revenue, as well as the costs of achieving it, determine the company’s profit level. Logistics operations (procurement and material management, warehousing, transport, and forwarding) constitute a cost center in the enterprise, whereas the supply chain, by combining revenues (the sales department, for example, constitutes a revenue center) and costs (departments such as warehouse, production, transport, and technical constitute cost centers), is often accounted for in the enterprise as a profit center.
Situational analysis
Decisions regarding the sales market, price, quantity, assortment, customer, and timing of product sales affect sales revenue. At the same time, through requirements for material quality, production methods, flexibility and quality of workmanship, inventory availability, lead times, and delivery methods, they significantly affect product costs. In turn, the implemented processes (which create costs) determine product quality and the level of customer service, sales availability, flexibility, and speed of response to customer needs, influencing the level of sales. Revenues and costs assigned to products in the supply chain, based on the generated profit, create the possibility of evaluating the organization and operation of the chain. The dynamics of changes and the magnitude of the deviation in profit value for various flow variants in the supply chain, according to the PLAN vs. ACTUAL comparison, form the basis for evaluating the chain’s efficiency. An example of a supply chain income statement, taking into account successive contribution margins, is presented in Table 1.
Reflecting the consequences of operational decisions made in supply chains in a consolidated income statement – for example, cooperation with a material supplier based on the VMI (Vendor Management Inventory) principle, outsourcing of sub-assembly production, commissioning a logistics operator to pick and deliver products, direct deliveries to the customer bypassing the distribution center, or maintaining higher inventory levels at the distribution center – enables the assessment of sales value and cost formation and their impact on profit in both the short and long term. The sensitivity analysis of the supply chain result, accounted for as a profit center, takes into account many related and interdependent factors of operational activities. The described example points to the need to introduce supply chain controlling at the planning stage. Changes and organizational solutions planned for implementation should be consistent across the entire supply chain (in the example: sales needs and capabilities should be consistent with marketing and procurement activities), have the profitability of all organizational variants in the supply chain estimated, as well as the configuration of prices and costs at the planning stage, and also have a developed method for measuring and controlling the goal (result). Hence, for example, the implementation of a JIT system for deliveries requires prior execution of an XYZ analysis and the identification of a stable X group, most susceptible to the implementation of delivery time synchronization, and the decisions presented in the example regarding improving material quality and increasing prices, which affect activities in the supply chain, should be preceded by a multidimensional sensitivity analysis of sales within the product-market dependency system.
The article comes from the magazine “Logistyka” 4/2008.