Friday 8th Nov 2019
As a small business owner, improving your supply chain may involve something as simple as reviewing where and how you store your inventory, or it could mean a much bigger exercise, involving ongoing reviews of production logistics. Anything you can do to improve a supply chain should help to minimise your costs and, hopefully, increase your profit margins and financial position too.
What is a supply chain?
A supply chain is a network of businesses or people involved in helping your business achieve its production goals. It’s everyone and everything involved in making products and shipping them out to your customers. Continuous improvement of your supply chain could be a full-time job, but it’s a wise investment in your business’s future.
An efficient supply chain makes the best use of resources: physical components, technology, finances, and human resources. Here, we’ll look at efficiency and effectiveness in small business supply chain management, and how you can ensure your business is delivering on all counts.
Efficiency versus effectiveness
Supply chain management is all about how well you’re managing your business’s logistics. Efficiency refers to the way you’ve organised your resources. How they’re used, when they’re used, and where they’re used by your team to ensure the fast, smooth running of your business. Effectiveness, on the other hand, is the way in which your production workflows produce the outcomes you’re looking for i.e. customer satisfaction.
The ideal scenario is one in which your business – big or small – achieves both ideals, and meets or exceeds the demands placed on it by everyone in the supply chain: your customers, partners, and suppliers.
However, depending on how you’ve organised your workflow, your business’s supply chain could be efficient but not effective, or vice versa.
For example, if you have thought through your logistics and set up a very efficient supply chain, then your products may be manufactured rapidly and delivered to customers quickly… but that’s not the same thing as having a workflow that guarantees every product will meet your customers’ specifications.
Overall, it may take no time at all to go from raw materials arriving at your premises to finished products going out on delivery – but if products are poor quality (contracts with suppliers determine quality standards and customer specifications) and cause problems later on in the sales journey, then you have an ineffective supply chain.
From another perspective, if you’re providing a high quality service or product that always meets your customers’ demands then your supply chain might be very effective, but that doesn’t mean it’s always efficient.
- An efficient supply chain demands a review of your internal processes, to ensure every aspect of your production is happening in the best possible way.
- An effective supply chain needs external factors to be taken into consideration, such as the constraints of your suppliers and the demands of your customers.
Getting your small business to work as efficiently and effectively as possible means making sure your resources, time and money are used in a way that reduces waste and minimises errors in every part of your business. You also need to stay in constant communication with external points of contact as often as possible – those suppliers and aforementioned customers – to ensure you’re meeting their expectations.
Are your suppliers holding you back?
Review your suppliers and supplier contracts regularly. Are they delivering the quality you need, where and when you need it? Are they meeting your Service Level Agreements (SLAs) often enough? Do you have a good working relationship with them – are the payment terms working to your advantage, or theirs?
Why is good supply chain management so important?
If you’re on top of your logistics, and you have an efficient and effective supply chain in place, then it stands to reason: your business is in the best possible place to achieve financial success and deliver customer satisfaction.
- Suppliers want to minimise the return of raw materials.
- When you’re working with ‘right time logistics’, it means you can pay suppliers on a schedule that works to your advantage, in terms of your cash flow.
- Customers want the right product, in the right quantities, and of the right quality.
- Customers also expect their purchases to be available when they want them and where they want them. You may be supplying a finished product (ie, as a small business that makes bespoke fountain pens, for example), or you may be playing a role in a much larger supply chain (ie, as the manufacturer of a car part, which a garage needs for repairs to a vehicle).
Good supply chain management can improve your financial position
As a small business, getting the balance right in your supply chain management can make a significant change to your financial position. Anything you can do to gain tighter control over your logistics could make a difference.
- Employing a just-in-time (JIT) system to reduce redundant inventory and waste by receiving materials just when they are needed
- Reducing production costs by managing your own suppliers’ services to you
- Cutting back on overall costs by having an efficient workflow in place
For example: At one end of the spectrum, if you can review your storage and – shipping from more than one location – reduce the amount of warehousing you’re using, then you can cut also back on the overheads associated with running and staffing those buildings. That could even lead to a decrease in the quantity of fixed assets you need to keep on your books. But at the other end of the spectrum, if you’re picking components from half a dozen different stock points in a production workflow, and you can reorganise the supply of those components to your actual production-line, then your employees can save time, which can also translate into saving money.
The phrase ‘time and motion study’ may sound a little granular. However, when that thinking is applied right across a supply chain, any savings or efficiencies made at scale can translate to money on the bottom line. It’s an increase in the leverage on your profit margins.
As your business evolves, regular reviews of your supply chain management should find and implement efficiencies without too much effort. The benefits are two-fold: usually, improved supply chain management speeds up the delivery of products and services to customers. But it also means – if, for example, you’re making and supplying a product to customers in four days, not six – you can invoice faster, too.
- The key to good supply chain management is oversight – understanding your workflows in detail, keeping your communication channels open and proactive
- Review the movement of essential components and products – whether that’s right across the country, or from one end of the warehouse to the other.
- Diagnose problems objectively. Identify the workflows you can change for the better, work around those uncommon disruptions you can’t avoid.
- Delegate responsibility for supply chain management. Too many views could inevitably lead to inefficiencies.
- Seek constructive feedback from customers and suppliers alike.
- If you can, make supply chain management reviews an integral part of your evolving strategy. Include your financial advisers in the discussions.
Disclaimer: Please note that these guides are provided for information purposes only and not as advice or recommendations. Before deciding to undertake any course of action you may wish to seek independent professional advice.