Jul
How the Perfect Order Drives Financial Performance
The perfect order is something to which leading manufacturers and distributors aspire. At its most basic, the perfect order is getting the right product delivered to the right customer in the right place; at the right time; and in the right quantity, condition, and packaging — and with the right documentation. The concept is important because it promotes an outcome that is the result of the concerted effort of virtually all of a company’s operations. It’s something companies must do thousands of times each month across the globe.
The impact of the perfect order can be significant. For instance, a 10-percentage-point improvement in perfect order rating correlates with 50 cents greater earnings per share. Furthermore, a three-percentage-point increase in perfect order rating correlates with one percent of additional profit margin — which, in the case of a $1 billion company boosting margin from 10 percent to 11 percent, means $10 million more on the bottom line. And overall, a five-percentage-point increase in the perfect order rating correlates with 2.5 percent better return on assets. On $1 billion in assets, that translates to $25 million.
Achieving the perfect order, however, is no simple task. It requires near perfection by a company and its supply chain partners across several key dimensions of the business, beginning with forecast accuracy and supply planning, through order management and distribution, and ultimately to receipt by the customer. All of these areas must have an understanding of the aim, what it takes to achieve the goal, and how to remain in alignment along the way. This, in turn, requires extensive and tight collaboration — among internal functions, to be sure, but perhaps more importantly, with external partners.
There are many factors that contribute to successful collaboration among all partners in the logistics chain. Listed below are eight key elements or thoughts that form the foundation of a tight, mutually beneficial relationship.
8 Elements of Successful Collaboration Between Supply Chain Partners
- Commitment from the leaders of the collaborating organizations (to guarantee resources, funding, and company buy-in)
- Desire to turn win-lose situations into win-win opportunities
- Open sharing of data, strategies, and vision, which develops trust
- Development and use of key performance metrics that jointly measure success
- Sharing of the savings from the process — and the cost-improvement efforts they pursue
- Commitment to collaborate for the long term
- Ongoing self-assessment — “What’s it like to do business with me?”
- Debrief process incorporated into every interaction
See something you’re missing? If your organization isn’t aligned around supply chain and logistics goals, it’s time for a change. Our team can help.
Effective Collaboration Begins with a Well-Defined S&OP Process
In order to excel at external collaboration (with suppliers, customers, and transportation service providers), the ability to collaborate internally is critical. The most effective internal collaboration process is achieved through a formal Sales & Operations Planning (S&OP) initiative. A best-in-class S&OP process is one of the most effective ways leading companies promote greater collaboration and, hence, better performance on the perfect order metric.
S&OP can generate myriad improvements in key areas of the supply chain that contribute to a company’s ability to achieve the perfect order. At a high level, it helps align an organization’s vision and corporate objectives, link strategic plans with execution, create a platform for communication of a company’s critical decisions, and create a process for closing the gap between financial objectives and business strategy. Quantifiably, S&OP can dramatically boost forecast accuracy and plant efficiency, as well as reduce inventory, manufacturing downtime, cost to serve customers, and transportation and distribution costs.
Greater collaboration through S&OP can be especially helpful in improving transportation performance. We’ve seen the adoption of S&OP generate benefits in transportation almost immediately. It creates a more predictable volume and mix of products, less volatility, and fewer expedited shipments. It further helps transportation decision-makers identify changes much earlier and schedule more accurately. The end results are lower overall freight costs and more satisfied customers — the latter of which should be the goal of any company striving for greater growth and profitability.
While the perfect order is certainly not the only measure of business performance, it’s arguably one of the most powerful and is used by the very largest and most profitable companies — in fact, it’s gospel. And achieving the perfect order is next to impossible without tight collaboration across the entire supply chain. Internal functions and external partners need to be continually focused on working together toward flawless execution and a commitment to getting customers exactly what they want.
Work with a Proven Partner to Align Your Efforts
At Brady Partners, we support and enhance the logistics function for trusted advisors and their clients. Collaboration is a key part of who we are and what we do. When you entrust your clients’ logistics performance to us, we not only seek to identify opportunities for improvement within that function but also how the entire organization can become part of the journey toward better financial performance.
If your clients have been struggling with their logistics, aligning internally and with external partners on what improvements to make, or in other areas that impact logistics, our team is here to help. Our logistics health check assesses your clients’ performance in this area to reveal areas where adjustments should be made. We can then further support your clients by establishing key benchmarks for performance and developing a strategy for ongoing improvement.
Contact us today to learn more about our capabilities and how we can help.