How SUPPLY CHAIN 3.0 Can Lead To Tangible Business Benefits (Part 6 of 6)

How SUPPLY CHAIN 3.0 Can Lead To Tangible Business Benefits (Part 6 of 6)


Vivek Sood




May 19, 2020

Following two benefits outlined in the previous entry, in this last entry of the blog series, let us go over the remaining benefits of Supply Chain 3.0.

By definition, Supply Chain 3.0 improves your cash position

Recall from the previous blog series that “The second measure of interest to us is in Supply Chain 3.0 is the $eed-to-$tore Efficiency. I mentioned that this is the darling of the supply chain crowd especially those coming out of logistics background. Right product, in right place, in right quantity, at right time (there are many other Rs which people add on, but we will stay simple here) – is the catch phrase. The aim is to churn the cash faster so that more of it sticks around for longer.” In fact, the data from a systematic study carried out by the Aberdeen Group reveals two critical insights. Firstly, the companies with more robust business networks have far superior cash conversion cycle – nearly 6 times better cash conversion cycle. Take a look at Figure 1 below:

Figure 1: Aberdeen Group, Working Capital Optimization, June 2007 
Figure 1: Aberdeen Group, Working Capital Optimization, June 2007
Secondly, and more importantly, their cash conversion cycle actually improved during the 2 years of testing times leading up to the global financial crisis, while the rest of the industry went backwards. As you can see in Figure 2, 92% of business network masters have improved their cash to cash cycle over the two years leading up to the Global Financial Crisis (GFC) while only 18% of business network laggards have improved it, while for 29% of them it became worse.
Figure 2
Figure 2
Is the result shown in figure 2 surprising? Hardly, if you reconsider the story of Nokia vs. Ericsson in the last blog entry. Same catastrophic fire nearly decimated one company while left the other one even stronger to later face onslaught of another supply chain 3.0 hero – that of iPhones.

Supply Chain 3.0 has high velocity

In economic booms, whether accompanied by economic volatility, or economic stability, supply chain 3.0 allows you to realise higher profits, quickly. In fact the potential of your company’s capabilities are multiplied many times over, perhaps by a factor of as much as 100 or more, by the leverage effect provided by your supply chain 3.0. How? Let us consider an example – the booming commodities industry. In the last 10 years to 2012, no other industry has boomed as much as the commodities industry. Prices of iron ore, copper, coal, gold etc. have gone up exceptionally during this period. Within this industry, iron ore is one of the largest and most capital intensive operations – dominated by three global giants BHP Billiton and Rio Tinto of Australia, and Vale of Brazil. In this scenario, to build a large iron-ore producer and exporter from scratch took Andrew Forrest of Fortescue Metals the full extent of supply chain 3.0. To raise finances, to build mining infrastructure, to build and gain access to the logistics infrastructure and to market the product in the international commodities trade, Fortescue Metals built a capacity in 3 years that many of its much bigger rivals would have taken more than 30 years to build. This was only possible through extensive utilisation of business networks that the company built, nurtured and managed effectively into creating a supply chain 3.0.

Supply Chain 3.0 help smooth out the volatility

Recall my earlier example of companies using supply chain 3.0 to configure more flexible labour force through use of sub-contractors and outsourcing. In volatile times this is essential to smooth out the earnings. Now let us look at a more concrete example, in a highly volatile industry. Global bulk shipping industry is one of the most volatile industries, with the shipping rates falling as much as 94% with a period of 4 weeks, or rising up to 400% with a period of few months. In such a volatile business environment, budgeting and planning can become a nerve-racking exercise for all the companies except those which use their supplier networks to cushion the lean periods with long term contracts and find scarce capacity during the boom periods. We have only seen a few examples of benefits that supply chain 3.0 – a business network of collaborating entities – can create for businesses. I will discuss more examples and as well as how to get there in future blogs.

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Vivek Sood

Our Quick Notes On Five Flows Of Supply Chain Management

Part of our new “Quick Notes” series – this report answers your most pertinent questions of the topic.

  • What are the five flows of SCM?
  • Why are they important TO YOU?
  • How can you map, track, and optimise these flows to serve YOU?
  • What is the importance of difference between "Supply Chain" and "Value Chain"?
  • What are the stellar case studies of each of the five flows?


USD 20


What Else Exists Besides The Product Flow In The Supply Chain?
How You Measure Success of Your S&OP Determines Success of Your Company?
Are Corporations Effectively Powerless Against The Booming Shipping Container Freight Rates?
  • Tangible benefits are those measured in monetary terms and intangible benefits cannot be measured in monetary terms but they do have a very significant business impact.

    Tangible benefits:

    Improves the productivity of process and personnel
    Lowering the cost of products and services purchased
    Paper and postage cost reductions
    Inventory reduction
    Lead time reduction
    Reduced stock obsolescence
    Faster product/service look-up and ordering saving time and money
    Automated ordering and payment, lowering payment processing and paper costs

    Intangible benefits:

    Increases organizational transparency and responsibility
    Accurate and faster access to data for timely decisions
    Can reach more vendors, producing more competitive bids ;
    Improved customer response
    Saves enormous time and effort in data entry ;
    More controls thereby lowering the risk of mis-utilization of resources
    Facilitates strategic planning
    Uniform reporting according to global standards

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