Supply Chain: Hidden Asset for Price-Performance Optimization

The economic climate over the last few years has become increasingly complex – driven by reducing margins, ongoing post-pandemic supply chain issues, and the evolution of consumption habits and purchasing needs. However, it’s increasingly apparent that regardless of the economic climate, most consumers consistently want to find a strong middle ground between price and premium performance. Naturally, this is a concept every company grapples with – finding balance between sale price, revenue, and how to maximize value to customers.

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One of the most variable and destabilizing costs for any manufacturer - one that often gets passed on to the customer - is the supply chain, given delays, failed shipments and fluid currency conversions. From our perspective, stabilizing and minimizing supply chain costs is a major strategic means of cutting costs, and thereby providing a win-win for us as providers and our customers.

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Here’s a look at four tips that can boost your supply chain strategy to optimize pricing and innovation.

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Safety in Numbers

There are layers of complexity for selecting supply partners. For companies developing large volumes of products, it's key to have several partners lined up and ready to take on the task. This approach lowers risk by not putting all your eggs in one basket, so to speak.

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It’s one thing to identify a list of supply partners capable of handling the work; but another important question is, which is best aligned with your company vision, deadlines, and quick manufacturing changes?’ Some might think a company should work with only the largest suppliers – in reality that’s not always the case.

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A stronger approach is often found in working with slightly smaller supply partners, as there’s an opportunity to invest in them with financial incentives and work closely with them to help drive innovation. For example, a team of engineers can be sent to the development factory and help work for a portion of a year, offering new techniques, enhanced software and hardware processes, and overall supply chain optimizations. This is important for companies delivering new products and solutions; it ensures they can quickly solve any issues as they prepare for, and execute, mass production.

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In reality, it’s so common for everything to work seamlessly in a lab environment, but when you take it into the real world, unseen issues often arise. This step ensures things go to plan, and ultimately consumers experience the best products at the best market prices.

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Long-Term Forecasts and Roadmaps

Another major challenge is purchase order stabilization. What I mean here is, for some supply partners, your orders might be the main – or only – opportunity for them to keep revenue coming in. If you opt to work with a smaller partner as mentioned earlier, it may designate the majority of its operational resources to your business. While this stands as a benefit (by being their only, or main focus) it also can introduce some difficulties.

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For example, if you need to expand production, there could be some inventory or economic hurdles that arise based on scaling. Eventually, the volatility makes its way to the supplier in the form of changing development needs. Large supply partners can weather that storm, as they tend to have many customers and can balance out development changes. However, for those that primarily work with one key client, they experience the throws of dwindling orders more severely. We saw the detriments of this when Apple announced it was moving the majority of production out of China.

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To mitigate these risks, it’s key to develop a one- to two-year product forecast, enabling supply partners to work with you to ensure appropriate scalability, and better manage their revenue changes. Not only does this help your supply partner, it also ensures you have a positive presence in your industry.

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Stabilize Currency Conversions

Additional considerations must be made for variable exchange rates, and their impact on upfront costs and revenues, as a deal made today could change in value tomorrow. Currency exchange rates are particularly important for companies that operate on slim product margins and lower levels of stock – and numerous factors influence these changes, like taxes, inflation, labor supply and demand, regulations and policies, political activities, etc.

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A key way to find stability, again, lies in having several options for supply partners – this way you can understand the costs of each, and make the best decision based on your needs and everyone’s respective economy. Also, organizations need to examine their upstream and downstream partners to better understand what parts of their business are most susceptible to exchange risk. Another tip is to try and fix exchange rates to one currency, to help minimize variables. Lastly, try to ensure you have a little timing flexibility, as these adjustments also impact exchange variables.

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Let Your Mission and Vision Impact Your Partners

Another important realization of an advanced supply chain is the positive impact companies can make on their headquarter city, country or region. With this in mind, a report from Markstein and Certus Insights found that 70% of consumers want to know how the brands they support address social and environmental issues, and 46% pay close attention to these efforts when making purchase decisions. To further adhere to customer expectations, medium- and large-scale organizations have a unique opportunity to make a positive societal impact through product development.

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For example, many companies are implementing aggressive emission and environment impact reduction measures. We’re seeing the largest companies instill best practices, and that pushes through to the smaller players. For example, Amazon might establish guidelines that aim to reduce emissions around shipping and product development – and companies can only use their platforms if they abide by the guidelines. As all leading OEMs and platforms work together to reduce emissions, there will be a continuous trickle-down effect through each respective market.

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A well-developed supply chain strategy is critical for businesses of all sizes. By analyzing production needs, securing the right supply partners, fixing variable currency exchanges and creating development roadmaps, companies can ensure their approaches are sustainable and ultimately benefit consumers with the best pricing and experience.?