Revenue leakage in Supply chain

A supply chain is the network of individuals, companies, resources, activities, and technologies used to make and sell a product or service.  Today we hear the term "supply chain" bantered about in the news and on the lips of politicians.  Quite often it is used in a bad light.  When something doesn't arrive on time, or when someone runs short of a product or component "it is supply chain's fault."

It is one of those scenarios when everything is going right you hardly ever hear the term "supply chain" and people don't think about it much.  Once there is an issue though it is one of the first excuses people come up with.  The truth of the matter is supply chain is very important and there is a lot of work taking place behind the scene in supply chain management.

In addition with being tasked to make sure supplies and components arrive on time and in the right quantity supply chain is also expected to control cost and get the best deal possible.  This can be a delicate balancing act where revenue leakage can occur at times.

First off when procuring items needed supply chain wants to negotiate the best price for an item.  For high use items supply chain might negotiate a Master Supply Agreement to make sure they are getting the best price.  This contract might include terms and conditions covering things like volume discounts and rebates.  There might be something covering return freight if items have to be returned, etc.

Oftentimes these terms and conditions are something that can't be put into the ERP system automatically.  It may require human intervention where someone has to keep track of quantities for rebates, and adjust pricing in the system when thresh holds are met for discounts, or a charge for return freight etc.  

If a corporation has many divisions or locations purchasing products covered in these Master Supply Agreements they need to reference it to get that negotiated pricing.  Otherwise they may end up paying list price.

During our audits we will pick up things like overpayments due to missed discounts, missed rebates, missed freight chargebacks, rogue spending, etc.  There are times when a larger problem is uncovered and it requires a contract compliance audit on certain contracts.

These efforts will result in finding the revenue leakage, fixing the leak, and recovering the money.  It can also go even further.  As you get a view of the true spend for a certain supplier it might even end up in a larger economy of scale that can be used in negotiating the next contract.