How To Predict The Economic Impact Of Adjustments to Your Supply Chain

Posted on February 08, 2018

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In today’s volatile business climate, it would be great to have a way to predict the future. While we don’t have a crystal ball in our toolkit, Venetia Partners does have the tools to help you set the right targets and “size the prize” before you implement any changes to your Supply Chain.

In a previous blog, “Do You Know Your Company’s Capability Score?”, we talked about using your company’s Capability Scorecard as a tool for target setting. Once you’ve got your Scorecard and have set some base targets for change, you will want to know the anticipated impact of these changes to the company’s bottom line. You need to make critical decisions based on which of your organization’s targets should yield the best and most desired results before you act. To get this insight, look at the impact to Economic Spread.

Why Economic Spread and not a few KPI’s or standard GAAP accounting valuation? The answer is revealing: for asset-intensive supply chains, benefits are often too easily recognized in some areas while the negative impacts in other areas go ignored. Therefore, Venetia Partners uses a streamlined Economic Value Added (EVA) valuation approach as the basis of our financial assessment and benchmarking toolset. EVA turns items on the balance sheet into costs that can be evaluated like any other.

But the EVA valuation approach only tells part of the “size the prize” story. To allow our clients to confidently predict the economic benefit of proposed improvements, Venetia Partners conducted a series of industry benchmarks to calculate the potential organizational impacts resulting from a change in practice maturity across the following three areas:

  • Revenue: Increased sales or margin lift
  • Operating Expense: Drives operating margin
  • Invested Capital: Impacts capital efficiency

Venetia Partners’ extensive industry benchmarking is the key to providing actionable insights. We calculate current Economic Spread, then run a series of scenarios which provide estimates of Economic Spread after the capability maturity reaches the proposed targets. Armed with that knowledge, you can make better, more focused decisions on where to set your organization’s sights on increasing Supply Chain maturity levels. This “sizes the prize.”

If you want to know the how deep the pool you’re jumping into is before you take the plunge, Venetia Partners can give your company the tools to find out. And that’s almost as good as a crystal ball.

 

 Supply Chain Maturity