{"id":229214,"date":"2026-05-18T10:31:17","date_gmt":"2026-05-18T08:31:17","guid":{"rendered":"https:\/\/www.ak-online.de\/?p=229214"},"modified":"2026-05-18T15:23:35","modified_gmt":"2026-05-18T13:23:35","slug":"supply-chain-management-as-a-value-driver-from-a-cost-factor-to-a-balance-sheet-item","status":"publish","type":"post","link":"https:\/\/www.ak-online.de\/en\/supply-chain-management-as-a-value-driver-from-a-cost-factor-to-a-balance-sheet-item\/","title":{"rendered":"Supply Chain Management as a value driver: from a cost factor to a balance sheet item"},"content":{"rendered":"\t\t
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Supply Chain Management as a value driver: from a cost factor to a balance sheet item<\/h2>\t\t\t\t<\/div>\n\t\t\t\t
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In an SCM optimisation project for a medium-sized engineering firm, we achieved a result that took the management by surprise. Simply by revising the inventory planning parameters, we were able to free up around 12% of tied-up capital. No new software, no ERP replacement, no major reorganisation. Just a management decision regarding the settings for inventory control.
In over 400 projects spanning three decades, we have observed this pattern time and again: in most companies, supply chain management fails to realise 20\u201335% of its value-enhancement potential. This is not due to poor staff or outdated technology. It is because, in many companies, SCM is treated as a cost centre rather than a strategic management function with direct relevance to the balance sheet.<\/p>\n

This article shows how management decisions in supply chain management influence working capital, EBIT margin and free cash flow, how you can specifically calculate SCM\u2019s financial contribution to enterprise value, and which levers you can use to achieve the greatest value contribution.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Why is the contribution of supply chain management to corporate value underestimated?<\/h3>\n

In most companies, supply chain management is still primarily treated as a cost centre, even though management decisions in this area directly influence working capital, EBIT margin and free cash flow.<\/p>\n

Historically, SCM was organised as an operational function: transport, warehousing, procurement. Strategic capital allocation remained the preserve of the finance department. This division of labour has become ingrained in structures and mindsets and demonstrably costs companies value today.<\/p>\n

In concrete terms, this means: management decisions in SCM (What inventory strategy? What delivery readiness targets? Which planning methodology?) are made by employees with no P&L responsibility and no view of the impact on the balance sheet. The 12% release of capital from our opening example was no coincidence, but the result of someone having, for the first time, clearly modelled the link between planning parameters and tied-up capital.<\/p>\n

Another symptom of this misperception: SCM metrics are conspicuously absent from board reports. Stock coverage, delivery readiness, OTIF or forecast accuracy often appear only in divisional reporting, rarely in strategic discussions. If the board views inventory levels merely as a cost line in the budget, rather than as a control variable with balance sheet implications, there is no impetus for the management decisions that would free up capital.<\/p>\n

European and North American companies together hold an estimated \u20ac1.5 trillion in excess working capital, which could be reduced through more active SCM management (PwC Working Capital Study 2023\/24<\/a>). For the individual SME, this is abstract. What it means in concrete terms: a company with an annual turnover of EUR 30 million that holds EUR 8 million in inventory incurs around EUR 960,000 in inventory costs per year on inventory alone, assuming a relatively low inventory cost rate of 12%.<\/p>\n

What is a value driver? A management function acts as a value driver when its decisions have a measurable impact on enterprise value, whether through higher free cash flow, improved margins or reduced cost of capital. SCM meets all three criteria. Our methodological approach<\/a> demonstrates how we operationalise this connection in practice.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t

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Which financial metrics are directly influenced by supply chain management?<\/h3>\n

Four financial metrics are directly influenced by management decisions in supply chain management: working capital through inventory strategy; EBIT margin through logistics and procurement cost management; revenue protection through the management of delivery readiness and OTIF; and risk costs through resilience strategy.<\/p>\n

When ASOS reduced its inventory levels by around 20% in the 2024 financial year, \u00a3143 million in capital was freed up; adjusted EBITDA grew by more than 60% during this period (ASOS FY24 Results Report<\/a>). This was not a stroke of luck due to market developments. It was the result of an active inventory management decision.<\/p>\n

An overview of the four financial levers<\/h3>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t
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The following table shows how SCM management decisions affect financial indicators:<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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SCM management decision<\/strong><\/p>\n<\/td>\n

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Financial KPIs<\/strong><\/p>\n<\/td>\n

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Practical example<\/strong><\/p>\n<\/td>\n<\/tr>\n<\/thead>\n

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Inventory strategy (target level, coverage)<\/p>\n<\/td>\n

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Working capital \/ Net working capital<\/p>\n<\/td>\n

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20% stock reduction at ASOS: \u00a3143 million in capital released<\/p>\n<\/td>\n<\/tr>\n

Logistics and Procurement Cost Management<\/td>\n\u00a0<\/td>\n\n

A 5% reduction in logistics costs of \u20ac40 million: \u20ac2 million contribution to EBIT<\/p>\n<\/td>\n<\/tr>\n

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OTIF monitoring (delivery capability)<\/p>\n<\/td>\n

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Revenue protection \/ Customer retention<\/p>\n<\/td>\n

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OTIF improved from 87% to 96%: a significant reduction in customer cancellations<\/p>\n<\/td>\n<\/tr>\n

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Resilience strategy (supplier network)<\/p>\n<\/td>\n

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Cost of risk \/ Total shareholder return<\/p>\n<\/td>\n

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Companies that actively manage resilience perform better in times of crisis<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Working capital is the company\u2019s \u2018fuel tank\u2019. Every euro in stock is capital that SCM management either ties up or frees up through its inventory strategy. A decision to reduce safety stock frees up capital that the company can use for investment or debt repayment. Unilever also reported in 2024 that active inventory management (a reduction of several days\u2019 stock) directly translated into margin improvements (Unilever Annual Report & Accounts 2024<\/a>).<\/p>\n

OTIF and delivery readiness: More than just a logistics KPI<\/h3>\n

Delivery performance levels or OTIF (On Time In Full) figures are the result of active SCM management decisions: What buffer strategies are defined? How accurate is the planning? How is supplier management conducted? OTIF is not a passive state of the supply chain, but the measurable result of management decisions.<\/p>\n

Companies with active resilience management outperform their competitors during crises and in stable market phases in terms of total shareholder return, as major long-term studies show. For mapping SCM metrics to working capital figures, the PwC Working Capital Study 2023\/24<\/a> recommends clear governance structures and cross-functional KPI ownership.<\/p>\n

Supply chain management is therefore not a passive operational function, but an active control task. What distinguishes a company that actively manages its inventory from one that passively administers it? The former has a well-founded target range for each ABC\/XYZ class. The latter relies on historical order quantities and hopes that logistics will fill the gaps. The financial contribution of this level of control is directly visible in working capital trends. Projects for inventory optimisation and working capital reduction<\/a> are therefore a core business area for Abels & Kemmner.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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How can the contribution of SCM to enterprise value be calculated?<\/strong><\/p>\n

\u00a0<\/p>\n

The financial contribution of supply chain management to enterprise value can be quantified in three steps: freeing up capital through inventory reduction, securing revenue by improving delivery reliability and OTIF, and increasing EBIT through cost reduction.<\/p>\n

\u00a0<\/p>\n

Step 1: Inventory reduction and savings on capital costs<\/strong><\/p>\n

\u00a0<\/p>\n

Every euro of inventory released reduces the company\u2019s capital costs. The formula: Inventory reduction (EUR) \u00d7 WCS (warehouse holding cost rate) = annual savings on capital costs. According to our project evaluations, the WCS (warehouse holding cost rate)<\/a> lies between 19% and 30%.<\/p>\n

\u00a0<\/p>\n

Specific calculation example: A company holds EUR 20 million in inventory. SCM management reduces inventory by 15% (EUR 3 million) through better replenishment decisions. With an inventory holding cost rate of just 13%, this equates to annual savings of EUR 390,000, which directly contribute to improved earnings. Added to this is a one-off cash inflow of EUR 3 million, which can be used for investment or debt repayment.<\/p>\n

\u00a0<\/p>\n

In A&K projects, companies typically achieve an inventory reduction of 20% or more.<\/p>\n

\u00a0<\/p>\n

Step 2: Improving delivery reliability and securing revenue<\/strong><\/p>\n

\u00a0<\/p>\n

Improving delivery capability protects revenue that would otherwise have been lost due to cancellations, customers switching to competitors or contractual penalties. A case study by Crowe documents that a manufacturing company, following targeted inventory management, achieved a reduction of over USD 10 million in inventory, improved its working capital by USD 2 million and simultaneously increased its OTIF performance (Crowe Working Capital Case Study<\/a>).<\/p>\n

\u00a0<\/p>\n

A conservative rule of thumb regarding the entire product portfolio of a stock-based manufacturer states: in the range between 90% and 95% delivery readiness, a 1% increase in delivery readiness yields a 0.5% increase in turnover.<\/p>\n

\u00a0<\/p>\n

Sample calculation: A medium-sized company with a turnover of 100 million, 20 million EUR in inventory and a value-weighted delivery readiness of 92% across its entire product portfolio improves this figure to 94%. This results in approximately 1 million EUR in additional turnover from improved delivery readiness through more skilful planning, and thus without increasing fixed costs. Even using a conservative estimate of a marginal profit of 25%, this results in a further \u20ac250,000 improvement in earnings.<\/p>\n

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Step 3: EV\/EBITDA Valuation<\/b><\/p>\n

\u00a0<\/p>\n

An improved EBIT margin directly increases the enterprise value for medium-sized companies, given typical valuation multiples of 6\u20138x. An EBIT improvement of EUR 500,000 results in a value increase of EUR 3.5 million for the company at a multiple of 7x. SCM optimisations therefore not only contribute to current cash flow and earnings, but also to the value that a buyer would attribute to the company.<\/p>\n

\u00a0<\/p>\n

This relationship is particularly relevant for companies planning a sale, succession planning or raising capital. Inventory that is EUR 2 million too high not only reduces liquidity but also signals to a potential buyer that supply chain management requires optimisation. More active inventory management thus simultaneously improves liquidity, the operating margin and external valuation perception. All three factors are taken into account in the company valuation.<\/p>\n

\u00a0<\/p>\n

To implement this, most of our clients begin with a situation analysis that identifies the key levers for improving inventory and availability management<\/a>. Once you are certain where the specific problems lie, you can immediately start addressing the relevant weaknesses.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Which operational levers generate the greatest value?<\/h3>\n

The operational levers of supply chain management can be divided into two categories: short-term, immediate measures with a high ROI (6\u201312 months) and structural changes with a long-term impact (12\u201324 months).<\/p>\n

There is a world of difference between parameter optimisation and an ERP replacement, but not always in terms of the outcome. Many companies are too quick to opt for the most expensive solution.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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What makes this approach so important? SCM projects often fail not because of the technology, but because of incorrect assumptions about the existing system. If you haven\u2019t properly assessed the current situation, you\u2019ll be optimising in the wrong place. And if you haven\u2019t simulated the impact of a measure, you\u2019ll only discover its actual effect once it\u2019s in production \u2013 too late and too costly.<\/p>\n

The specific process in four steps:<\/p>\n