A Guide for Financial Executives in Manufacturing and Distribution
Supply chain disruptions are not just a temporary inconvenience but a persistent challenge that can jeopardize the very foundation of midsize manufacturers and distributors. From logistics difficulties and semiconductor shortages to pandemic-related restrictions and labor shortages, these disruptions have significantly impacted operational efficiency and profitability. This blog explores strategies for managing these kinds of challenges and emphasizes the importance of digital transformation in supply chain management.
Why Supply Chain Disruption Matters to Financial Executives
Supply chain disruptions directly impact an organization’s financial health. Midsize manufacturers and distributors are grappling with:
- Soaring costs: Increased transportation expenses, raw material price fluctuations, and expedited shipping fees have driven up operational costs by an average of 15-25%. 1,2
- Eroding revenue: Stockouts, delayed deliveries, and inability to meet customer demand have resulted in revenue losses of 5-10%.1,3
- Customer attrition: Poor order fulfillment, product availability issues, and overall customer dissatisfaction have led to customer churn rates climbing by 12-15%.1,4
As stewards of financial strategy and stability, financial executives must grasp the intricacies of supply chain management. Effective supply chain management can lead to cost savings, improved cash flow, and enhanced profitability. By integrating financial and supply chain strategies, CFOs, Controllers, and VPs of Finance can drive more resilient and agile business operations.
The Scope of Supply Chain Disruptions
Supply chain instability manifests in many ways, including:
- Logistics Difficulties: Transportation delays and bottlenecks have become commonplace, often exacerbated by geopolitical tensions and regulatory changes
- Semiconductor Shortages: Critical for a wide range of products, the shortage of semiconductors has disrupted production across multiple industries, from automotive to consumer electronics
- Pandemic-Related Restrictions: COVID-19 (and its aftermath) has introduced unprecedented challenges, from factory shutdowns to restricted movement of goods and personnel
- Labor Shortages: A significant reduction in the workforce, driven by health concerns and shifting labor market dynamics, has further strained supply chain operations
Strategies for Managing Supply Chain Disruptions
To mitigate the impact of these disruptions, consider the following strategies:
- Diversification of Suppliers: Relying on a single supplier can be risky. Diversifying the supplier base can help mitigate the impact of disruptions in a specific region or with a particular vendor. According to McKinsey, supply chain resilience measures such as dual sourcing and regionalization have been crucial in mitigating the impact of disruptions5
- Investing in Technology: Digital transformation is crucial for modern supply chain management. Implementing advanced software solutions, such as Manufacturing Operations for Sage Intacct, can provide real-time visibility into supply chain operations, enabling more informed decision-making
- Enhancing Collaboration: Strengthening relationships with suppliers and logistics partners can improve communication and collaboration, leading to more efficient problem-solving and risk management
- Building Resilience: Developing a robust risk management framework that includes scenario planning and stress testing can help organizations better prepare for and respond to supply chain disruptions
The Role of Digital Transformation in Supply Chain Resilience
Digital transformation is essential for maintaining a competitive advantage in the face of persistent disruption. Deloitte emphasizes the necessity of digitization for modern supply chain management, which enhances visibility and agility.6 By leveraging cloud-based ERP systems like Sage Intacct, financial executives can gain deeper insights into their financial and operational silos. These systems provide:
- Instantaneous Access to Live Data: Access to up-to-date information allows quicker response times and more accurate forecasting.
- Automation: Automating routine tasks reduces the risk of human error and frees up resources for strategic initiatives
- Scalability: Cloud-based solutions can easily scale as a business grows, ensuring that the organization is always equipped to manage increased demand
Enhanced Capabilities with Sage for Distribution and Manufacturing Operations (SDMO)
Sage for Distribution and Manufacturing Operations (SDMO), a purpose-built module designed to integrate directly with Sage Intacct and other accounting software, provides extended capabilities tailored to address specific needs for manufacturers and distributors. Key features include:
- Automating Core Financial Tasks: Secure access to multi-dimensional insights across entities empowers financial leaders to drive business performance
- Simplifying Complex Product Designs: Centralizing information and simplifying design complexities accelerates processes, enabling teams to focus on innovation and quality
- Enhancing Distribution and Supply Chain Operations: SDMO acts as a single source of real-time information, allowing teams to adapt quickly to demand changes and anticipate supplier issues
- Optimizing Inventory and Warehouse Management: Real-time inventory oversight minimizes waste, reduces adjustments and variances, and increases order fulfillment
Key Benefits of Sage Manufacturing Operations and Accounting Software
Integrated manufacturing operational and financial management solutions like SDMO and Sage Intacct offer several key benefits:
- Accurate Demand Forecasting: Utilizes predictive analysis of historical data to estimate future demand, optimize inventory, and make better-informed supply decisions
- Streamlined Inventory Management: Avoids stockouts and minimizes warehousing costs through methods like just-in-time (JIT) or just-in-case (JIC) and material requirements planning (MRP)
- Global Supply Chain Management: Manages complexities through risk management, staying compliant, and maintaining visibility to avoid over-reliance on single suppliers
- Automation and Real-Time Insights: Automates processes for better visibility and accuracy across locations, ensuring efficient logistics and transportation management
Final Thoughts
Supply chain instability poses significant challenges, but with the right strategies and tools, financial executives can steer their organizations through these turbulent times. Diversification, technology investment, enhanced collaboration, and resilience-building are key to managing disruptions effectively. Embracing digital transformation is essential for gaining the agility and insight needed to maintain operational efficiency and drive long-term success. By staying informed and proactive, financial executives can ensure their organizations remain resilient in the face of supply chain challenges.
Learn More About Sage Intacct for Supply Chain Management
Sage Intacct is a modern accounting system that when integrated with SDMO takes your manufacturing and distribution operations to a new level of automation and real-time visibility. As a top Sage VAR (value-added reseller) and Development Partner, SWK Technologies will help you tailor your Sage ERP implementation around your needs and ensure that you get the most out of your technology investments.
Contact SWK here to learn more about Sage Intacct and SDMO, and see firsthand how this combined solution will help you digitally transform your operations.
References:
- The Cost of Supply Chain Disruptions: 20+ Statistics
- 100+ Supply Chain Crisis Statistics: The Issues and Impact of Supply Chain Shortages in 2022
- How to Overcome 5 Major Supply Chain Disruptions in 2023
- Four ways to turn supply chain disruptions of 2023 into a competitive advantage
- Supply chains: To build resilience, manage proactively and Taking the pulse of shifting supply chains
- Building Supply Chain Resilience beyond COVID-19