How to Identify Trouble Spots in Your Small Business Supply Chain
Look to Your Supply Chain to Control Costs and Improve Customer Delivery
If you’re a small business owner, then you know how great the concept of your small business is. You know that you have a great product (or great products) and you know that if more customers bought your product (or products), they would share your enthusiasm for it.
But you also know that you don’t always ship on time to the customers who order your products. And sometimes, you want to ship an order but you don’t have on hand exactly what you thought you had on hand.
And then, sometimes, your bookkeeper will tell you that your balance sheet is bleeding red because it’s costing you more than you thought to make, inventory and ship your products.
What do we have here?
- Customer delivery
- Inventory accuracy
- Cost of goods
And what do they have in common?
- Supply chain
Optimizing your supply chain management means identifying the trouble spots in your customer delivery, inventory accuracy, and cost of goods. That allows you to root cause your issues and implement countermeasures to prevent them from recurring.
Some companies don’t include customer service as a part of supply chain management. However, for small businesses, it’s imperative that supply chain have ownership of customer delivery. The toilet paper industry describes their supply chain as “from stump to rump.” The “rump” being the end user (pun intended).
If you are not delivering to your customers on time 100 percent of the time, do you know why that is? If you don’t know why, your supply chain does and you should ask it.
Assuming that you want to ship your customer its order on time, you’re late because:
- Your customer placed its order late
- Your customer placed its order on time, but you didn’t process it in a timely manner
- You thought you had product to ship, but you did not
- You thought you had product to ship, but it turned out to be defective
- Your supplier was supposed to deliver product to you, so you could ship it to your customer, but your supplier was late
Managing your supply chain lead times can go a long way toward solving your on-time delivery issues.
For you to receive shipments on-time from your suppliers, you need to understand how long it takes your supplier to receive your PO, process it and ship your order out the door.
Add to that lead time the time it takes to truck, fly, ship or otherwise transit your order to you.
Then — how long does it take you to receive, inspect and provide any value add to that product. That’s your internal lead time.
Finally, how long does it take you to receive your customer’s purchase order, process it and then ship it out the door?
Understanding, managing and enforcing all those lead times can radically improve your small business’ on-time delivery performance. If it takes you six weeks to flow product through your supply chain from end-to-end and you don’t have anything in stock, don’t promise your customers you can ship to them next week.
Your deliveries to your customers might be late because you thought you had products to ship, but when you looked for them — you couldn't find them. If that's the case, you have an inventory accuracy problem. And supply chain is here to help.
Inventory accuracy can be drastically improved (and, indeed, be at 100 percent) by implementing regular physical inventory counts and a cycle counting program. A physical inventory count means that you shut down all inventory transaction activity (receipts, shipments, etc.) and count every single inventory item. You then compare that to what your system or records tell you that you thought you had. And then reconcile the differences. You should do this at least once every year.
Cycle counting is a program in which you count a few key items every day. By counting important (and different) items on a regular basis — you can keep your inventory accurate without expending too many resources. Cycle counting also helps to reduce the number of items that need to be reconciled when you do your annual physical inventory.
And — most importantly — physical inventories and cycle counting will help ensure that when you go to ship a product to the customer, you actually have it on hand.
Cost of Goods
Supply chain is on the front lines of managing your company's cost of goods. If you acquire an item for $10 and you sell it for $15, you might think that you're making a $5 profit. But your supply chain will tell you the truth.
The $10 represents part of your cost of goods. You also need to ship, warehouse, inspect and insure those products. There also may be customs duties involved. And so that $5 profit might turn into $2 or $3 profit. And the profit is where you get your money to pay for more inventory, pay your employees, pay your bills and, if there's any money left, pay yourself.
Your supply chain can work with your suppliers to negotiate that $10 down to $9 or $8. That cost of goods reduction can help prevent raising prices to your customers, keep your small business competitive and help your small business thrive.