Running a Small Business 101: Understanding the Supply Chain

Supply Chain

Depending on the industry in which you operate and the goods and/or services that your business offers, you are likely to answer to or rely on a supply chain in one form or another.

Now, smaller businesses are presented with a unique opportunity when it comes to supply chains because, unlike bigger businesses, you have a greater degree of control.

Understanding the supply chain is key to ensuring that your business is always operating at maximum efficiency. Let’s take a look.

What is a Supply Chain?

The supply chain is the given name referring to the entire process of selling a product, from the acquisition of materials through the manufacturing process right to the delivery of the final product.

All products will go through a supply chain of sorts, although depending on the product and the business, it might be limited to a few steps. It encompasses everything, including sourcing raw materials and labour, transport and logistics and even customer service strategies.

Supply chain management is, therefore, the oversight of the process from start to finish. It is all about ensuring efficiency. Even elements like outsourcing paying your suppliers or receiving payments via a third party like Silverbird, who are financial specialists, should all be included in your supply chain.

There are a number of issues which could pose a risk to the supply chain and therefore impact your profit margin too. Common issues that you might encounter include the availability of the materials, wastage, dips in demand, labour shortages and even poor customer feedback.

In order to manage a supply chain well, you need to have contingency plans in place for when the unexpected inevitably occurs. There are a number of benefits to implementing solid supply chain management strategies.

Firstly, it reduces waste, which in turn increases efficiency. It also allows you to eliminate unnecessary expenses and cut costs. Your timeline and stock availability also improve. All of this then helps to drive profit.

Setting up a Supply Chain

Even if you already have a supply chain in place, you can still refine it and improve its efficiency, or you could choose to take things back to the beginning and start again, building it back up from scratch.

If you are new to running a business, then you might not have a supply chain in place; in some instances, developing one from scratch is often easier than refining an existing supply chain.

The first thing that you need to do is to have an idea of what exactly you want to achieve.

You need to have a vision, but beyond this, you need to have a solid idea of your numbers. If your business is brand new, then this is likely to be based on educated guesses. Start by thinking about the products that you either already do or plan to sell.

You really need to have a good sense of what your consumers are going to want from you at all stages of the transaction. This often means estimating the demand; this is likely to be difficult for a brand-new business that hasn’t made any sales.

However, if you are refining your supply chain, you should have workable data to pull from. Prepare the numbers to use when shopping around for suppliers.

It is time to begin to do your research and look for suppliers. You are likely to find that you have a number of options; suppliers can be found through a number of sources like business directories, trade shows, publications or associations, as well as recommendations or other business organisations.

After you have amassed your list, it is time to begin to whittle it down to the best candidates. You are likely to have your own metrics by which you want to measure this, but it is likely to include factors like their financial strength, their track record, the size of the business and the capacity that they can handle, the cost and the standard and quality that they produce.

This might perhaps be best measured by meeting with the suppliers and having prototypes produced. It can be hard otherwise to gauge an accurate depiction of their processes and results.

During your meetings with the suppliers, you should learn more about them. While you might think that they meet all of your criteria, some are likely to excel in areas over others. Think about which metrics are the most important for you.

Oftentimes, asking for a prototype, as mentioned above, can also help you to differentiate them and get a better idea of what your final product will look like. You should also ask for quotes. Once you have decided, you will then want to draft your agreement and have a contract put in place detailing the obligations of both parties.

This protects your business, and the terms set out by the supplier. You should not work with a supplier without one.

You should also be aware of the likelihood of experiencing issues and have a plan in place for when you do so. If your supplier isn’t local, then there is the potential for damage during the shipping process or delays during the manufacturing of the product.

In some instances, external factors like the weather and the availability of raw materials can also affect your timelines. Consider the ways in which your business could be affected. You will not always be able to create a contingency plan, but you can raise these concerns with your supplier, and together you can discuss potential solutions should these issues arise.

Lastly, you should also consider ways in which you can monitor and track the goods. Most suppliers should offer this option as a standard, and if they don’t, it might be worth considering another supplier that does. Having a way of tracking your shipments reduces stress and tension, as well as provides transparency on the part of the supplier.

The tracking will depend on the supplier and how the products are shipped; if they take care of the shipping too, then they might have their own software; if they use a courier service, then the courier service is likely to have a tracking system. You should be able to track your shipments as soon as they have left the supplier.

The Bottom Line

Once you have a supply chain in place, that doesn’t mean that you are done. You should then take the time to assess the supply chain and its efficiency. If things have started to lag, you’ve experienced issues, or if the prices have increased and you can no longer afford to pay, then you will need to consider beginning the process again and refining your supply chain.

As a small business, it is incredibly important that you do everything you can to develop a solid working relationship with your suppliers. Having regular meetings, paying bills promptly and providing feedback can all help to encourage a good relationship with your suppliers.

In the end, you need to look at your products from your customer’s point of view; it is the quality of the products and the price point that matters the most. If you wouldn’t be happy to receive the product after having paid however much for it, then it is time to reassess your supply chain.