Why Do Revenue Leaks in the Supply Chain Happen?
Revenue leaks are detrimental to every type of business, especially in the supply chain industry. Organizations lose profits due to operational inefficiencies or lack of transparency. Supply chain disruptions cause on average a 107% drop in profitability. This translates to billions of dollars in lost revenue every year, which could be avoided with the right technology and visibility.
Revenue leakage can occur due to several reasons, including: inaccurate inventory tracking, inefficient supplier management, transportation delays, and hidden costs in the supply chain. Traditional supply chain systems make it challenging to track the movement of goods across the entire supply chain, which in turn makes it difficult to identify and address revenue leaks. This is why investing in technology is vital.
How to Curb Revenue Leakage
Companies that use supply chain analytics and real-time monitoring experience a 75% reduction in lead times. With the advent of new technologies, businesses can now leverage real-time reporting and visibility tools to address supply chain inefficiencies and plug revenue leaks. These technologies include:
- IoT and RFID: By leveraging the power of the Internet of Things (IoT) and Radio Frequency Identification (RFID) technology, businesses can track the movement of goods across the entire supply chain. This helps in identifying bottlenecks and delays, which could lead to revenue leakage.
- Big Data Analytics: By analyzing data from different sources in real-time, businesses can gain insights into the supply chain and identify revenue leaks. With big data analytics, companies can optimize their supply chain operations, reducing costs and increasing revenue.
- Blockchain: Blockchain technology provides a transparent and immutable ledger of all transactions in the supply chain. This helps to identify fraudulent activities and improve the overall efficiency of the supply chain.
- AI and Machine Learning: By leveraging AI and machine learning algorithms, businesses can gain insights into supply chain operations and identify revenue leaks in real-time. This helps the supply chain, reducing costs and increasing revenue.
Executives can benefit greatly from this technology as it provides them with actionable insights and real-time data to make informed decisions. By having complete visibility into their supply chain, supply chain leaders can identify inefficiencies and take corrective action, reducing revenue leaks and increasing profitability.
The key is reporting, ideally via quick and easily digestible dashboards.
As Josh Aharonoff, Founder and CEO of Mighty Digits and Founder of Your CFO Guy says, “The key [to identify and address revenue leaks] is reporting, ideally via quick and easily digestible dashboards where the key stakeholders of the business can understand where action needs to be taken. That reporting can be on gross margins, sales by cohort, or net outstanding receivables to name a few.”
What Else Can Stakeholders Do To Curb Revenue Leaks?
In the case of revenue leakage, a few examples can be: ensuring that the sales and marketing teams are quoting the right prices and discounts on goods, and that the engineering team has the right infrastructure in place to manage & track orders.
CFOs play a crucial role in identifying and addressing revenue leaks within their organizations, especially when it comes aligning departments to address this ongoing issue. Aharonoff notes that, “The best finance and accounting functions work with all departments to collect and remit the data needed to ensure the organization stays financially in good standing. That means investing in a relationship with each department ahead of when problems arise. In the case of revenue leakage, a few examples can be: ensuring that the sales and marketing teams are quoting the right prices and discounts on goods, and that the engineering team has the right infrastructure in place to manage & track orders.”
CFOs should analyze historical returns by cohort and ensure proper accruals are in place to accurately forecast returns, leading to fewer surprises.
When it comes to revenue leakage for retailers, returns pose a significant challenge. How can a business balance customer satisfaction with the need to minimize revenue loss from returns? Aharonoff notes that it’s all about analyzing a company’s return history. “Customers in today's day and age are used to the idea that they can return something if they are not 110% satisfied with it...often time's way into the future. CFOs should analyze historical returns by cohort and ensure proper accruals are in place to accurately forecast returns, leading to fewer surprises.”
Potential for revenue leaks in the supply chain is a challenge that businesses face globally. However, by leveraging technology that provides visibility and real-time reporting, companies can address this challenge and optimize their supply chain operations. This not only helps in plugging revenue leaks, but also improves the overall efficiency of the supply chain, reducing costs and increasing revenue.
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