The 4 Essentials of Managing Supply Chain for Small Businesses in 2022
As businesses take on the new year, they face operational challenges caused by world events, ranging from COVID-19, to inflation, to trade sanctions, to armed conflict, all affecting their company’s value. The pandemic has impacted consumer demand, staffing, supply chains, and regulations across the globe, putting small to mid-size companies at risk if they cannot pivot during the first quarter of 2022. Organizations must adjust how their company conducts business, with crucial components needing to change within their supply chain processes to be successful. Components include visibility, diversification, timing, and negotiation.
1. Visibility
The need for visibility in the supply chain is becoming more prominent as firms seek to increase efficiency and flexibility in the ways that they do business. Visibility is especially crucial to small and mid-size companies because they must aim to satisfy their customers’ needs to maintain loyalty. With all the challenges the supply chain is facing, whether it is a shortage of products, materials, staff, or technology, companies must have good visibility and understanding of their client’s needs, as well as their own timely KPI reporting. Enhanced reporting and communication with clients will ultimately lead to increased success and client retention.
A growing number of firms are introducing technology to better understand their operations so they can make informed decisions in a timely manner. Systems like QuickBooks and Excel are used by many businesses to manage financial and operational metrics, but ERP programs that have come out more recently allow for better visibility and tracking. Capabilities such as planning schedules, production and inventory needs, analytics, and machine learning can help businesses understand supply and demand and react to any obstacles impeding performance. Technology can also help smaller companies understand the reasons for delays, allowing them to interact with various sources and improve efficiencies.
2. Diversification
Diversifying your client and vendor relationships can reduce the risks of delays and other supply issues. A large percentage of businesses outsource their raw materials, distributed products, and supplies to other countries due to price and convenience, but that may not be the best option. Other factors that need to be taken into consideration are timeliness of product delivery, quantity and quality of products, and ultimate value.
Diversification of suppliers, both domestic and foreign, will also help select “best-of-breed suppliers” that can produce the necessary quantity with the highest quality for the lowest cost rather than choosing from a limited number of suppliers. Using a variety of suppliers may require using a third-party platform to track movements of shipments to allow for transparency. Some ERP systems include this function and other solutions may be found in some of the route optimization software available in the market. Working with a variety of suppliers will give you more flexibility on pricing and timing.
3. Timing
Creating cost-efficient tactics can be challenging during a time with high consumer demand, a shortage of inventory storage and staff, and the use of outdated equipment on top of the regular daily challenges of managing a business. The time, quantity, and destination of shipments play a significant role in supply chains. When a company places orders, these can go to:
- – Businesses that assemble products
- – Businesses that store the products
- – Businesses that deliver the products
Before COVID-19, countless businesses utilized a “just-in-time” process for their supply management due to the lack of economic obstacles, allowing the company to save money on overhead. Now, these businesses are looking into “just-in-case” processes, which include a little bit of extra storage. The barrier to this tactic is that the rise of demand for storage has led to higher costs. Some companies have gone as far as negotiating with their clients to take product early and store it themselves. Most clients, if they have the space, have been happy to do so in order to meet their own consumer’s demands in a timely manner.
Just-in-case can help prevent stock-outs, but one should make careful decisions by measuring and understanding the variations of their customer’s demand. This includes factors such as the economy, seasons, holidays, trends, and the demands of clients and consumers. If a business has a close relationship with suppliers, they may be able to get a leg up on the negotiation process regarding timing and costs. Effective communication, including providing solutions, can allow clients and suppliers to benefit from the relationship and collectively improve performance through constructive negotiation.
4. Negotiation
As mentioned earlier, the people that run the businesses are crucial. Having a trusted bond with a business partner can assist you when you are in need, especially when it comes to building relationships and establishing agreements with suppliers and manufacturers. This can lead to more reliability, better communication, and a beneficial transaction for both groups.
When in the negotiation process of product pricing, it is essential to understand the costs that influence your margins and price, such as raw materials, labor, operating expenses, and equipment. Creating a pricing calculator is essential, especially with monthly increases to inflation, to be able to conclude what your new pricing should be to maintain your margins. This type of negotiation often involves a team that has a good understanding of the process and how to delegate spending to the business to prioritize your company’s growth.
Throughout 2022, inflation is expected to rise as demand continues to stay high. With the vast majority of businesses facing some type of roadblock, it is essential to untie the knot of supply chain issues to avoid them in the future. Creating a visible supply chain will allow business owners to better identify opportunities for growth and balance through their supply and demand challenges. Anticipation is critical for a company, and by setting up a strategy that allows your business to pivot quickly, it will be able to stay financially and operationally strong in a time of uncertainty. This will allow businesses to stay flexible and meet their growth objectives.
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RVR Consulting Group provides your company with resources to support your vision and generate faster returns. By operating from both a strategic and tactical position, we protect clients during critical periods of uncertainty. Our services include advising, talent acquisition, sourcing fractional employees, exit planning, and selling your business. Regardless of your challenges, our firm’s experience is structured to make the road to your objectives faster, simpler, and more profitable. Our goal is simple: help you maximize the value of your business.
We are motivated to foster growth and develop opportunities for companies and their internal staff. Those economic impacts transcend into communities when our clients succeed and have invaluable, lasting effects.
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