Improving SME Supply Chain Management: Opportunities and Barriers
If you’re looking for ways to enhance the performance of your small to medium-sized enterprise, you might be surprised at the possibilities you could find if you turn attention to the supply chain.
On the other hand, if you are already aware of the opportunities and are working to capitalise on them, you could be a step or two ahead of many of your peers.
In our experience of working regularly with SMEs, many of them have yet to seriously explore the business benefits of improved supply chain management.
What’s Wrong with SME Supply Chain Management?
Of course, all businesses are aware of their supply chain and its influence on profitability. For one reason or another though, many don’t advance beyond the traditional focus on cost minimization, often initiating standalone projects to reduce unit costs in purchasing, seek out the lowest freight rates, or grasp at whatever cost reduction concept happens to be in vogue.
SME supply chain strategies are often functionally focused and disjointed, lacking the holistic approach necessary to develop end-to-end supply chain excellence. Some SMEs have no supply chain strategy at all, or at least, none that exists in a concrete, written form.
If these issues resonate with you, and your business has not yet got to grips with its supply chain, the following three opportunities are probably there for the taking, just waiting for you to identify and unlock them.
Inventory Control and Optimisation
There are few things more important in supply chain management than having the right inventory in the right place at the right time, but for SMEs, there are few things more challenging in supply chain management. Problems with inventory control often arise, especially when there is no dedicated supply chain team in place.
With the right degree of attention, and that help of SaaS and cloud computing technology to provide end-to-end supply chain visibility, it is possible for any SME to improve its inventory management and optimise stock levels, in turn freeing up working capital and increasing the rate of inventory turns.
Why do SMEs Struggle with Inventory Management?
If inventory management were as simple as described above, wouldn’t it be a primary focus for every company? Unfortunately, what tends to happen in many smaller enterprises is that conflicting objectives among the various business functions get in the way of inventory optimisation.
For example, the sales team wants high inventory availability to ensure customers’ orders are fulfilled on time and in full. Meanwhile, the finance department continually seeks inventory reductions to free up working capital, and in another functional silo, ongoing attempts to forecast demand may deliver inaccurate predictions.
In such a scenario, nobody is taking effective control, with the typical outcome being an increase in inventory, with levels slowly creeping up to the point of being wasteful.
To solve the problem of inventory creep, it makes sense to dedicate some human capital to cross-functional supply chain management, making it easier to increase collaboration and develop sales & operations planning programs, which when implemented and maintained correctly, can drive inventory-management improvements.
When a company is aware of which customers and products generate high profit and conversely, which ones are only marginally profitable, break-even, or even loss generators, its decision-makers can take steps to nurture the most profitable ones and reduce the cost to serve the others.
However, SMEs often neglect cost-to-serve, a crucial indicator of customer value, and in adhering to a one-size-fits-all services approach, overlook opportunities to reduce costs and increase profit.
Cost-to-serve analysis can be quite complex. That may be why smaller businesses, in which functional-domain owners share supply chain management responsibilities, never seem to get around to it.
Enterprises that understand and embrace the cost-to-serve concept, therefore, enjoy a distinct competitive advantage. They often achieve savings and profitability improvements by segmenting their supply chains to provide tiers of service. This segmentation, which can be by customer or product, helps to ensure that service and inventory-management performance is balanced and unfettered by the handicaps associated with under or over servicing.
Supplier Performance Monitoring and Management
Just as it is possible to prioritise and segment service and inventory performance, a company can categorise its suppliers according to their criticality to the business, and their performance.
Knowing the difference between critical and non-critical suppliers is a valuable step in performance management. The knowledge enables targeted relationship-development based on factors such as risk, order lead-time, volume, or indeed, any other performance element that impacts the inbound flow of materials or goods.
Perhaps one of the most significant challenges in effective supplier management for SMEs, is that the smaller the business, the less some suppliers may value it. Of course, it would be nice to believe that all customers are treated equally in B2B markets, but it would be a flight of fancy to do so.
Lack of Influence a Barrier to SME Supplier Management
In reality, small to medium-sized enterprises often lack influence when it comes to setting performance expectations, making it all too easy to push supplier management into the background.
On Those that enjoy more success, do so because they seek suppliers that are a good fit for their profile as a customer, and focus on the lifetime value of a relationship, as opposed to being overly price-focused.
With rigorous selection processes and attention to robust, but motivational supplier agreements, it’s entirely possible for SMEs to concentrate efforts on strategic partnerships with critical suppliers, while leaving the more transactional approach to those supplying routine commodities and materials of marginal value.
What Opportunities are Hiding in Your Supply Chain?
Supply chain management can be challenging for SMEs, and of course, globalisation is leading to longer and more complex supply chains even for the smallest of businesses.
Without the budget for a permanent supply-chain-management team, there may be little time and few resources available to hunt down hidden opportunities.
However, there are almost always ways to improve a supply chain operation, and very often, the payback is more than worth the effort put into finding and exploiting them. Remember, there is much more to successful supply chain management than cutting costs, and if your team is finding it hard to look for value-adding opportunities, there are always external specialists ready to shoulder part of the burden.
For example, Dawson Consulting is a professional services firm specializing in supply chain improvement and optimization for SMEs. If your company is facing a challenge that you’d like solved, contact us today and let’s see if we can help.