Lesson 10: Supply Chains

What You’ll Learn: Supply chains aren’t just for mega-corporations. Every business large and small has a supply chain in one form or another and maximizing its efficiency, flexibility and redundancy. We’ll show you how to build a chain that supports your current and emerging needs, ensuring that it will grow and mature as your business does.

Supply Chain (continued)

Tips for Managing Your Supply Chain

Your supply chain isn’t a set-it and forget-it proposition. Supply chains need to be managed and monitored. This is both art and science, so make sure you practice the skills needed to keep your supply chain in good order so that it works for you, not against you.

  1. Think global, stay local – It’s hard to argue with the allure of global suppliers, but when possible, you should try to stay local. As we’ve seen in the pandemic and trade wars, businesses with global supply chains have had problems meeting customer needs because of logistical problems, tariffs, workforce shortages and closed factories. Going local whenever possible offers you expedited delivery and closer control over quality. The global supply chain is always out there, so don’t ignore it completely, especially if selection or price are key differentiators in your business plan.

  2. When in doubt, delegate – You can’t be all things to all people. Know your strengths and weaknesses and, whenever possible, delegate or outsource the weaknesses. If you are a small operation or even going solo at the moment, invest in quality software that can automate routine tasks or find a trusted partner to handle these things for you. Companies that do save up to 20% over the course of five years, not to mention all the time you free up by outsourcing and automating tasks you don’t enjoy anyway.
  3. Data is your friend – If you use a software solution to track and manage your inventory, you’ll find that you can create a leaner, more efficient supply chain. Use data and analytics to track inventory, boost fulfillment rates, build better relationships with vendors and manage customer interactions more fully. Depending on the software solution you choose, you may also be able to use analytics and artificial intelligence to predict future demand and spot problems before they affect your supply chain.
  4. Build-in resiliency – Given today’s dynamic market, your supply chain needs to be responsive, flexible and resilient. Make sure that you have multiple options for suppliers, contractors and delivery networks so you can easily switch between them to ensure that your supply of raw materials, goods and products isn’t disrupted or delayed. Even if you have a go-to supplier, you want to be able to pivot in real-time so that your customer’s expectations are met should the unthinkable happen. If your customers become concerned that you aren’t able to deliver on your promises, they may go elsewhere. 

 

Supply Chain Metrics

It’s essential to monitor the health of your supply chain to know that you are getting the most out of it in terms of value, pricing, fulfillment and satisfaction. It’s easy to let the train run away from you if you don’t, as a new business requires you to wear many hats, often all at once. That’s why you want to invest some time, money and effort into making sure your supply chain is operating correctly and at peak efficiency. Software will do a lot of the heavy lifting for you, but here are just a few of the things you should be monitoring:

On-time Delivery – This metric is all about your customers getting what they want when they want it and being able to track this process in real-time. As a business, you are also a customer of your suppliers, and this metric can be used to track that as well. In the beginning, you can track this information on a spreadsheet, but eventually, you will want to automate this process. In its most basic form, delivery is tracked by order date, date promised, date shipped and date delivered. If you shipped 100 orders in a month and one of them arrived a day late, your on-time delivery rate is 99% for that month. The same would be true for products ordered and shipped by your suppliers.

You should always set the goal for on-time delivery at 100%. Of course, it’s not a realistic rate, since things are often out of your control such as weather or third-party shipping errors.  Most companies find a 98.5% and higher on-time rate is acceptable and attainable.

Inventory Accuracy – Once again, the ideal is to have 100% accuracy, which means that everything you ship is what your customer ordered and expected. Monitoring your inventory to ensure there are no outages, or if there are, that product is on its way, will increase your on-time delivery. Accuracy also relates to fulfillment errors where incorrect products are shipped out to customers. A high return rate affects your inventory as well as your bottom line.

Cycle Counting – Counting the number of times products in your warehouse are completely replenished helps you control inventory effectively. You should assess this quarterly if possible, but no less than annually. If you have three cases of product and you need to order another three cases in a specific period of time, that is “one turn” or “one cycle.” Knowing your “turns” allows you to adjust your orders so that you always have sufficient quantities of popular items in stock and can liquidate items that are not selling. Items sitting on your shelves aren’t profitable; they are a cost until they sell. Cycle counting is even more important if your products have a finite shelf life, which requires you to throw “spoiled” product away. For this metric you want to set an acceptable rate of turnover for all your products, specific product categories and individual items, so you always have a complete picture of the performance of your inventory.

Cost of Goods Sold – This can be difficult to track. If you buy an item for $10 and sell it for $15, then your gross margin would appear to be $5. But that doesn’t factor in the cost of the goods. If you make the product yourself, you need to revisit the cost of making the item, including labor, raw materials, utilities, etc. By knowing the actual costs of goods sold, you’ll know when to either raise prices or reduce expenses.

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