This article originally appeared on IndustryWeek.
A well-designed supply chain is a powerful weapon, especially in fast-moving markets. It can reduce cost, increase revenue and delight customers. But taking the bold steps to overhaul a company's mission-critical manufacturing and distribution footprint isn't easy. As a result, leadership teams often opt for incremental changes that fail to deliver big benefits.
That's a missed opportunity. Companies that take a more strategic approach improve plant output by up to 25% and inventory turns by up to 40% while reducing capital expenditure and increasing the agility, flexibility and speed of the supply chain, Bain research shows. Overall, creating an optimal manufacturing and distribution network increases gross margins by 6 to 10 percentage points.
Leadership teams that achieve those gains have a broader and more strategic view of network optimization. They see it as an ongoing effort to determine the ideal number, size and location of manufacturing and distribution assets for a top-performing supply chain. They use network tools to figure out the right balance among cost, service, capital efficiency and flexibility—from purchasing raw materials to delivering finished goods—in order to best meet the company's needs and goals.
Successful companies understand the power of designing the network to support a specific strategy. For a discount retailer such as Aldi, for example, that may mean optimizing the network for costs. For a fashion retailer such as Zara, it might be optimizing for speed. The key is understanding what provides competitive advantage. The answer to that question—be it cost, service or speed—becomes the North Star for evaluating supply chain choices, such as the most efficient flow of goods from suppliers to customers. It helps determine the right balance among cost, service level and capital efficiency.
In our experience, we see four myths that limit the ability of leadership teams to turn their supply chain into a competitive weapon.
Keith Donnelly is a partner with consulting firm Bain & Company in the Atlanta office, Meghan Shehorn is a Bain partner in the Chicago office, and Debjit Banerjee is an expert principal in Bain's New York office.