How to Increase Company Value by Making Clever Decisions in Your Supply Chain

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heworldhasexperiencedsupplychaindisruptions
in many markets largely as a result of the COVID
pandemic. The root cause of these disruptions
is primarily the dramatic changes in both consumer
and business demand and behavior for products and
raw materials. Companies that had strong supply
chain processes were able to react faster and with less
disruption fulfilling customer demand. Supply chain
processes have many discreet elements, options, and
choices, however, no two are the same. While there are
no prescribed formulas, there are dos and don’ts that
are important regardless of the model.
Guiding Principles for All Supply Chains
The following principles apply to virtually all supply
chains. Often business professionals mistakenly think
of the elements as overly analytical and precise, often
saying “buy more”, which sounds easy, but nothing
could be further from the truth. These principles should
guide all supply chain decisions.
How to Increase
Company Value by
Making Clever Decisions
in Your Supply Chain
MARK FASOLD
Strategic Advisor
Falls River Group - IMAP USA
mark.fasold@imap.com
Mark Fasold, Strategic Advisor to Falls River Group (FRG)
– IMAP USA, shares with Creating Value the guiding
principles companies should follow to optimize their
supply chains including the vital dos and don’ts. Using
omni-channel retail as an example, he explains why a
company’s approach and decisions regarding its supply
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position. For company owners looking to sell, this is key
in terms of working towards achieving a higher valuation.
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It’s crucial to understand the end-to-end view. It’s
like a chain; break a link and the chain fails.
b. Optimizing each supply chain component will
suboptimize the whole. The inter-dependency of
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c. Learn to live with uncertainty and variability.
Dealing with issues from front to back is just par
for the course.
d. Staff the supply chain with people that can see its
entirety and intuitively balance risk. People that
want things clean cut, uncomplicated, and overly
precise won’t do well.
e. Setting up systems of punishment for your
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have a seat at the table and be part of the broader
team.
Implications of Omni-Channel Retailing
Omni-channel buying by consumers is the melding of
how people shop and place orders. i.e., online, phone,
retail stores, by text, and direct to business. The COVID
pandemic placed the consumer front and center
and wanting to shop where and when they desired,
changing the buying process at a pace none of us
could imagine.
Each shopping method presents challenges to the
supply chain, e.g., one unit is picked and shipped for
an on-line sale, yet a store needs to present depth of
assortment by SKU. Packaging and tagging for the item
differ depending on the purchase channel. Furthermore,
the receiving, storage, and pick and pack in warehouses
vary depending on where the product is going.
Warehousing to fulfill multiple channels requires
significant engineering and process control. Each
transaction type needs to be mapped out from
beginning (when the product is commercialized and
is in the production phase) to when it is presented to
the customer for sale. Legacy companies - retail store
based or direct to consumer - need to re-imagine how
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this exploding omni-channel world.
It All Starts With the Product
The supply chain begins with how a product
is conceived, designed and ready for production,
recognizing that the product must be relevant, priced
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The merchants and product developers need to
consider downstream impacts to the supply chain. A
great product that is overly complex, hard to produce,
and low volume, can take disproportionate time for
little gain.
The supply chain cycle must provide in-season
information before the following year’s same season
product gets developed. Hence the importance of lead
time management (see section below). Merchants
need customer feedback for seasonal product
introduced say in fall season for a given year before
they design and develop the following year’s products.
Excessive lead times are an indicator of poor supply
chain processes.
Critical Choices Early on That Affect the Entire Supply
Chain
The entire supply chain cycle is a series of choices
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critical choices are:
a. Raw materials, components and related impact
lead times and production capabilities for the
manufacturer. An overly sophisticated raw
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takes a lot longer to obtain than a garment dyed
t-shirt. Each has a place in the marketplace but
have vastly different lead times.
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b. Factory selection needs to consider many factors
including capacity, re-order times, costs, logistics,
capabilities, country of origin, human rights, and
environmental standards. Each factory possesses
certain skills that are special to that location such
as garment washing, product finishing, leather
cutting, and utilization. A company must have
sourcing expertise in-house or use an agent that
has the necessary knowledge to place products.
c. Estimated volumes and timing of exposure to
customers will drive much of the supply chain
activities. Forecasting is a set of skills that have
been automated in recent years and outperform
human capabilities. At the same time, human
input is important to assess item demand within
categories and adjust forecasts to match the
company’s overall forecast.
d. How long a product will be in the line greatly
impacts many supply chain decisions. An item
that has been in the line for years and is a proven
seller can be bought very differently and more
aggressively than a new, say unproven item that
has unknown appeal.
e. A product spec that details all elements of the
product is a necessity. Sketches and emails are
not enough. Investing in product spec software
that can detail each item’s specifications has
pervasive, positive outcomes in a supply chain.
Lead Times - What They Mean and How to Impact?
Often businesspeople will talk about lead times as
fixed and set for any particular product, whereas
nothing can be further from the truth. Lead times are
variable and change all the time, for example, large
volume, highly seasonal products such as outerwear
will have a longer lead-time than a basic apparel item
that sells year-round, like a t-shirt. Small volume items
will vary compared to items that a manufacturer can
set up a production line for and run products through
for months at a time.
As a product is developed, sourced, forecasted, and
planned to sell over time, working with the vendors
and developing productions plans will determine each
item’s lead time.
Use of Buying Offices Versus Company Owned
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This is an often-debated topic and both models work.
Starting your own sourcing office is hard work and
requires a long-term view to develop staff and product/
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to your vendors and the ability to partner. On paper it
will look cheaper versus paying a commission to an
agent. However, an agent relation is faster to establish
and provides better access to production capabilities.
Agents also bring buying power to the sourcing and
costing decisions.
The decision is not just down to cost. It involves
desired vendor relations, process controls and how
concentrated production will or will not be - product line
breadth and scope are large considerations. Likewise,
location is another decision that needs to be made,
depending on where production is concentrated. If
production is geographically dispersed around the
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Working Capital Management Inventory
Management (IM)
For most omni-channel consumer companies, the
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cash annually. This area is one of the least understood
in the entire supply chain. The common “buy more”
mantra is often heard when something is in short
supply. However, if it’s always ‘buy more’, somewhere
else ‘buy less’ has to occur.
When inventories are disproportionally high or low,
service levels decline, excess inventories grow, and
revenues are sub-optimized, all of which are symptoms
of a poor supply chain. These signs indicate it is
time to focus on a disciplined end-to-end approach
using forecasting planning tools, process controls,
demonstrated sourcing skills, disciplined decision
making, and metrics.
The underpinning of buying inventory is expressed in
the ‘newsvendor inventory model’ that simply states:
For a newsvendor who sells papers on a street corner
(from yesteryear), the demand is uncertain, and the
newsvendor must decide how many papers to buy
from their supplier.
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If they buy too many papers, they are left with unsold
papers that have no value at the end of the day; but
buying too few papers, they have lost the opportunity
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The dilemma for any inventory manager is how much to
buy using judgement and risk insights all supported by
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and related processes.
Areas to explore are forecast control (matching item/
SKU forecasts to company revenue projections);
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and techniques; logistics; planning with vendors; PO
management and more.
One last topic related to IM is markdown and
discontinued inventory dispositions, recognizing that
markdowns are often one of the largest hits to the PL.
In traditional retailers the floor had to be cleared to
accept new inventory and markdowns were heavy and
immediate. In direct-to-consumer companies, there is
less pressure to sell off excess/discontinued inventory
and a cost recovery approach can be used and if
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Get ready for the argument that markdown sales steal
from full price sales. Companies need to analyze these
tradeoffs and optimize the “whole”. Old inventory must
be moved and decreases in value rapidly.
Lastly, buying policies to guide the inventory manager
are required, including how much on a given forecast
to buy (buy-through), safety stock required to capture
upside demand and provide time for recovery, exposure
assumptions (will item go forward or is it one season
and done?), and how to manage minimum quantity
orders for low volume items.
Supply Chain Technology
Technology tools for supply chain management have
advanced incredibly in the last decade and will continue
to do so at an even more rapid pace. Supply chain work is
driven by people using technology for all its aspects. The
software uses AI tools to track, forecast, and dollarize
millions of calculations a night, constantly monitoring
and highlighting changes and prompting actions.
Some software providers tout inventory management
but in fact it’s about tracking inventory and unit/
dollar amounts. The areas least understood by some
software vendors are forecasting, planning over time,
logistics and PO management.
Software exists to develop product specs for most
product categories and standardizing specs to vendors
is a real boost to the supply chain’s success. Product
design software has developed recently allowing
product developers to build product in 3-D including
small physical models and digital representations of
the product.
Lastly, there’s a long-standing debate on whether to
use the historical approach of open-to-buy versus the
more recently developed unit-based approach. The
pre internet direct marketing world has been almost
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item by item as represented in print catalogs (and
today on a web site).
NEWSVENDOR INVENTORY MODEL
Carrying costs
Markdowns cost to dispose
Inventory obsolescence
OPTIMIZING INVENTORY MANAGEMENT
OPTIMIZED
(Total Cost)
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I N V E N T O R Y C O S T S H
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Back orders
Extra shipping
Service calls/chat
Lost revenues
Ill will with customers
INVENTORY
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