Meaning
Total profit earned across the entire production and distribution network for a specific product or category. Evaluating supply chain margin involves looking at the difference between the final retail price and the total cost of production and movement.
Value Capture
Each partner in the process from the raw material supplier to the retail store takes a piece of the total profit. The supply chain margin must be large enough to sustain all these participants while keeping the product attractive to the consumer.
Cost Structure
High logistics expenses or expensive storage fees can quickly reduce the amount of money left for the brand owner and the distributors. When a firm analyzes its supply chain margin, it looks for ways to remove unnecessary steps that do not add value to the end user. This might involve switching to a more direct route to market or using more efficient packaging to reduce shipping volume.
The total profitability of the network determines how much a company can afford to spend on marketing and product innovation.
Channel Health
A healthy distribution network requires that every tier earns enough to stay in business and provide good service. If the total profit pool shrinks, the resulting pressure often leads to a breakdown in the relationship between the supplier and its partners.
