An efficient supply chain

Profit = Revenue – Cost

In the past, many companies looked toward maximizing revenue. Today, however, the focus has shifted towards minimizing costs.

It should be agreed that one business requires good relations with its supplier to have an efficient supply chain. This is, of course, not always true. Since the goal is minimizing costs whilst maximizing revenue, Dell has found it more efficient to go direct, cutting out the ‘middle man’. Their factories were able to sell goods directly to customers via the internet. However, not all companies can achieve the same goal through the same means as Dell, and not many would want to risk using such means. This can be explained with the following equation:

Surge in demand for your product + Product not generated quickly enough = dissatisfied customers

Especially in the current economic times, when the global economy is highly unstable and therefore unpredictable, it is difficult to say that having low inventory levels is exactly ‘good’. Although one might not predict a surge in demand anytime soon, still, you never know. This is especially worrying if your product is highly demand elastic.

There are also factors to consider in maximizing efficiency within the supply chain, such as using more than one supplier, or the sourcing of materials. Whatever the methods, it is important to consider the long term effects of a strategy used to minimize costs or to maximize revenues.