Over the past two decades, companies have poured billions of dollars into improving their supply chains. These efforts, from implementing new ERP platforms to overhauling supplier selection and management processes, have delivered significant benefits: reduced cost of goods, accelerated time to market, and stronger global competitiveness.
But a weak link remains. Even the most sophisticated supply chain operation won't help manufacturers anticipate demand. Surprised? You shouldn't be. Despite all the investments made in forecasting and analytical capabilities, several key trends are working against manufacturers. Here are the top four.
- Weak channel performance management: Many manufacturers depend on a complex web of thousands of distributors, retailers, and partners that collectively represent 50 percent or more of their revenue. Unfortunately, many organizations are using obsolete revenue management processes and tools that make it difficult to manage these channel relationships objectively and proactively. This makes it harder to anticipate market demand and impairs supply chain performance.
- Lack of insight into incentive strategy: Regardless of their B2B or B2C models, most manufacturers leverage a wide range of pricing strategies to drive demand through their supply chain and distribution partners. These strategies include volume-based discounts, rebates, special pricing authorization, ship-and-debit claims, and market development funding. Designing and implementing these incentive programs is relatively easy, but anticipating their effectiveness and impact on market demand is a challenge for even the savviest organizations. Manufacturers with outdated or manual revenue management processes are often caught by surprise by the results. Even if those results are better than expected, the surprise plays havoc with efforts to anticipate demand.
- Delays in executing contracts: Manufacturers depend on contracts and agreements to manage their supplier and distribution relationships. But the highly labor-intensive process of creating these contracts, going through endless internal and external revisions and redlines, securing approval, and storing the executed contracts can create a massive backlog in contract management departments at the quarter's end. The inability to process contracts and agreements in a rapid and streamlined manner adds risk and unpredictability.
- Fragmentation and shift in demand: In its 2012 report Manufacturing the Future, McKinsey & Co. identifies several changes that contribute to the challenge of gaining visibility into market demand. For one thing, demand for products in virtually all manufacturing segments is shifting to emerging markets such as Brazil, India, China, and Africa. Also, the growing need for customization clouds manufacturers' view of true demand. From airlines to electronics manufacturers to automotive suppliers, companies are struggling with the proliferation of models, shorter product lifecycles, and increased customization, adding another challenge to the ability to anticipate demand.
Without a streamlined and efficient approach to revenue management, these forces can erode the effectiveness of supply chain operations and weaken a company's competitive position. What's a manufacturer to do?
Many companies have begun to view their supply chain, contracts, agreements, incentives, promotions, and compliance not as distinct, linear processes, but as parts of a single integrated process. Revitas calls this enterprise revenue dynamics (ERD). Solutions include automated contract creation and execution; tools for handling multi-tier pricing incentives and complex revenue structures; compliance solutions to meet commercial, financial, and industry regulations; and analytics to report on past performance and model future success. A formal revenue management strategy using ERD also eliminates the legal and financial risk associated with manual and error-prone spreadsheet-based models.
For companies with complex supply chains and incentive structures, ERD can deliver a strategic competitive advantage in these ways.
- Optimizing contract performance
- Providing faster and more accurate insight into market demand
- Optimizing channel incentive spending and channel relationships
- Improving working capital by reducing the risk of excess inventory
There's an old saying: The best defense is a good offense. In a similar manner, the key to a high-performance supply chain may be an automated, integrated revenue management solution. To find out more on ERD, visit the Revitas Blog.
And if you have questions, please leave them in the comment section below.