by Andrew Armstrong
Too often, businesses view their supply chain as a necessary evil as opposed to a valuable resource. This integral element of most businesses is woven through every aspect of operations. From manufacturing to sales to finance, the supply chain routinely fails to command the respect it deserve.
For most companies to succeed, the goal is to deliver a quality product at a reasonable profit. On an elementary level, this translates into efficient manufacturing at a lower cost. For manufacturing startups, here are several ways to achieve effective supply chain management:
Understand Your Supply Chain Elements.
Too many startups mistakenly believe that their “widget” comes from one source. In fact, there is likely a long line of suppliers that provide materials, processes, and services before a product is delivered. Understand where the raw materials come from that each supplier must order for your components as well as their particular constraints. Suppliers also have machinery and technology issues to contend with as they create customized products.
Learn how these disjointed sources of materials affect your supply chain costs and cause potential delays. Transportation partners play an enormous role in the supply chain as they bring products into distribution centers and sometimes directly to customers.
Develop Relationships with Supply Chain Partners.
Develop relationships with each of your supply chain partners and make communication a top priority. Partners who feel well-informed and part of a team, rather than dictated to, will be much easier to work with in addressing scheduling issues or other adjustments to the product specifications.
Manage and Mitigate Supply Chain Risk.
One of the most critical components for mitigating risk in the supply chain is effective communication. Aside from communicating with suppliers as much as possible, many companies are also employing some advanced technology solutions to supply chain planning. According to one recent survey of 600 supply chain decision-makers, 41 percent have an Internet of Things (IoT) Supply Chain Planning solution in place, and another 23 percent were working on such a strategy.
These advanced systems allow companies to compile both internal and external data and integrate that information into their internal systems for better decision-making. For example, data on weather, temperature, accidents, and global political issues can be used to predict potential supply chain setbacks. Cisco and DHL published research last year indicating that IoT-connected supply chains could lead to as much as $1.9 trillion in profits due to cost-saving and increased revenues.
Employ Demand Forecasting and Inventory Planning Solutions.
A common mistake that startups, and even established businesses, make is to run monthly forecasting off of spreadsheets that only reflect historical data. While past sales figures are useful to a degree, they aren’t the most accurate sales forecasting methods and are a common cause of inventory and supply chain issues. The most effective way to manage both inventory and the supply chain is through a comprehensive demand forecasting and inventory planning solution. These systems rely on demand figures for forecasting, rather than sales, and they provide several benefits. They allow the company to slash its inventory, which is a major cost-saver. They also provide better service to customers as there are fewer backorders due to poor planning.
Don’t Forget the Hidden and Indirect Costs.
Are you aware of the hidden and indirect costs in your operations and your supply chain? The companies that have saved the most and become highly efficient have identified some surprising areas that are eating into your operating budget. For example, if you’re still using a paper system for PO’s, you may want to re-think that strategy as it could be wasting from 3-5 hours per week.
Some of the indirect costs in your supply chain include such things as IT, staffing, real estate, business services, and travel. It’s one thing when your startup has these costs under control, but when a supplier doesn’t have a handle on these costs, they’re often passed on to you in the form of higher rates. While it’s difficult to dictate cost-savings to a key supplier, some firms have had success using Procurement Professionals who can help negotiate these items with vendors.
Supply chains in our global economy have become increasingly complex and more difficult to manage. Yet, startups that wish to succeed in any industry must have a solid handle on this critical process component. Proper supply chain management leads to more efficient operations and cost-savings, which translates into greater profits for the company.
Andrew Armstrong is an independent business and market strategies consultant in the San Francisco Bay Area working primarily with technology and start-up phase clients. He founded and ran his own digital marketing agency, KickStart Search, for 6 years prior to being acquired by Los Angeles-based Wpromote in April of 2015. Follow him on Twitter @kickstartseach.