Your Small Business Supply Chain Survival Kit
Welcome to your Small Business Supply Chain Survival Kit
You, Small Business Owner, are the personification of a Swiss army knife. Just like the multi-tooled pocketknife, you are the go-to resource for almost any situation that requires a solution - and needs it now.
Does your Small Business need to onboard a new customer? You pull out the blade and you quickly cut through all the administrative red tape to start shipping (and invoicing!) ASAP.
Is there something funky happening with your Small Business website? You pop open the screwdriver and fix it pronto.
Did your accountant call to tell you that the IRS has been reviewing your Small Business tax return from two years ago and it's missing some key documentation? You pull out your can opener and dig through the creamed corn that is your filing system. You then reach deep down into the muck and produce the documentation the IRS wants.
That's what you do. Because you are a Small Business Owner.
But supply chain... oh, supply chain. Somethings are just too complex for even the most versatile of Swiss Army knives to tackle. Sometimes you need a full blown survival kit. And that's what we have here. Your Small Business Supply Chain Survival Kit.
First of all, Small Business Owner, allow me to clarify. Supply chains are not a disaster of some kind that you have to fear. Supply chains are your friend. Small Business Owner, you should think of your supply chains like peaceful mountain streams. Yes, a peaceful mountain stream that delivers a soothing, melodious background noise and fresh drinking water - without a Small Business Owner having to pay it any regard.
Okay, not true.
Just like those peaceful mountain streams, if you're not paying attention, there's a danger that the stream - i.e. your supply chain - could dry up. And what might you be left with? That's right... a whole lot of nothing - right where you should be hearing that soothing, melodious stream of fresh drinking water.
Or, just as bad, a flash flood. That's the opposite possibility -- too much supply chain gushing at you all at once. A flood of excess inventory, customer complaints and increased cost of goods.
And how do you survive a flood? A survival kit. So, as promised, here is your Small Business Supply Chain Survival Kit:
Sourcing & Supplier Management
Small Business owners often develop co-dependent relationships with their suppliers. If that's your case, there's nothing to be ashamed of. We're here to help.
You may have started your business with just a seed of an idea - and you found a supplier who helped you bring your idea to reality. That supplier showed you how to turn your idea into a product. They cobbled together components and built and delivered your dream.
So it makes sense that you might feel loyal - even beholden - to your supplier. Your supplier was there for you at the beginning and now you have a tendency to forgive that supplier's occasional late delivery, poor quality or cost increase.
Let me ask you this question - how would your customers feel if you delivered late or shipped poor quality or raised prices?
Listen, I get it. No one's perfect and your supplier may not perform up to the 100% you need and expect. But you have to set the terms of your expectations, measure your supplier's performance and communicate with your suppliers on how they're performing. And if they're not meeting your expectations, you may need to find other suppliers.
That's what sourcing is.
Every year (or two years or three years - but never more than three years), conduct a sourcing exercise. That means find other potential suppliers and solicit their ideas about how to make your product (are there any innovations that you're not using right now?) and what it would cost. You can use an RFQ or RFP process for this. And if you have a strong relationship with your current suppliers, you can include them in this sourcing exercise - to give them every opportunity to continue the business relationship with you.
The key to supplier management is to keep records and communicate with your suppliers. By keeping records, you know how often your supplier is late, what the history of quality is and how often pricing changed. You can also keep track of your scrap, so that you understand what your actual costs are.
But the only way for a supplier to support you is for you to communicate when you are unhappy with those late deliveries, quality issues and cost creeps. And to let them know when that next sourcing exercise is.
Lead Time Management
Your Small Business has many lead times. One of the biggest mistakes rookie supply chain pro's make is to ask about a lead time. There isn't a lead time. There are many lead times. And to maintain your supply chain survival, you need to understand them all.
Let's say you've just ordered a part from a supplier. What is that supplier's lead time, you might wonder. Is it the time it takes them to make your part? Is it the time it takes them to procure their raw materials and then make your part? Is it the time it takes them to ship you your part? Is it all that put together? You see my point. If you ask your supplier what their lead time is and they tell you two weeks - and then you expect to receive that product in two weeks (and you even base promises to your customers based on that assumption) - but then two weeks comes and goes and you don't get that part... what happened?
Your supplier might have been partially accurate. It might make them two weeks to make that part. But it takes them a week to get the raw materials from their supplier. Then another two days to inspect those raw materials. Then another week five days to get it scheduled in their production plan. And another week to get it out the door and shipped to you. That's five weeks! That's their lead time.
And you have those same lead time nuances. When your customers ask you what your lead time is (as opposed to what your lead times are), make sure you're taking into consideration all of your supplier lead times and your own internal receiving, inspection, scheduling, production and shipping lead times before you answer them.
How much of a product do you have? Where is it? What kind of shape is it in? How much is it costing you? And... are you 100% sure about all of that?
If you can't answer each of those questions with certainty, you don't have inventory control (this includes consignment inventory). And if you don't have inventory control, you are spending more money than you need to operating your business.
Think about that - if you don't have enough inventory, you can't meet your customer needs and you're going to end up either leaving money on the table or increasing expenses to pay for expedite fees or express shipping - and eat into your profits.
And if you have too much inventory, you've overspent already. Your money is in your supplier's bank account (not to mention paying to store and insure your excess inventory).
And if you don't know whether you don't have enough or have too much, then there's a very good chance you're going to end up buying inventory you already have (i.e. spend too much) or not ship a customer an order you thought you could ship (i.e. lose revenue).
To get and maintain inventory control, you need to conduct annual physical inventory counts and regular cycle counts. And do them properly. And continue to do them.
There is so much more to supply chain than this... but if you, Small Business Owner, can handle sourcing and supplier management... you'll keep costs down. And if you get a firm grasp of your lead times and can communicate them to your customers... you'll ship to your customers on time. And if you have inventory control... you'll manage your company costs.
And if you do all of that, you'll supply your customers what they want, when they want it... and get that done by spending as little money as possible - which is the definition of optimized supply chain. Well done.