Before your product gets into the hands of customers, it will be manufactured, transported, and warehoused. In short, it will follow a supply chain that leads potentially to new sales for your business. Making each link in the supply chain run efficiently can keep costs down, save time, and improve morale. By supporting your in-house team and choosing your outside suppliers carefully, you can likely reduce the time to market and see a healthier bottom line, as these experts explain.
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Some small businesses choose a supply chain partner because they quote a low price without taking all factors into consideration. “The biggest concern that I see is that people don't actually sit down and calculate soft costs," says Brad Knight, CEO of Riverwood Solutions, a Plano, Texas-based company that helps businesses improve the efficiency of their supply chain. By way of example, Knight explains that a widget in China may cost $10 less to manufacture than it does in the United States. But a small business may forget that it also costs money to send their chief technology officer overseas regularly, arrange airline tickets and lodging, and possibly send over support engineers—costs that would be drastically reduced by choosing a higher-priced but domestic supplier. "When you start figuring out the opportunity costs to your business to have employees traveling, the soft costs are beyond just the logistics and the customs and the freight," Knight says.
Knight also believes that small businesses "should be very careful when they rush to offshore" the manufacture of their products. Often, a product will need to go through several revisions and iterations before it is ready to go to market on a large scale. Although it might cost more in the beginning to go with a proto-typing facility in North America, the profit margins will improve when you're ready to scale up.
"What the small business owner has to be aware of is that they need somebody on their side managing what they've negotiated," Knight says, referring in particular to businesses that are dealing in foreign countries. For example, if a small business needs fewer than 15 people overseas, Knight believes that it is more cost-efficient to outsource the work to a third party.
"No two supply chains are identical, so there is no one-size-fits-all solution when it comes to managing yours," says Chad Eichelberger, president of brokerage at Coyote Logistics, a Chicago-based transportation and logistics services provider.
For small businesses that want to evaluate their current supply chain, Eichelberger says that they should start by defining their goals and objectives and then find "the right partner or group of partners that can optimize your supply chain by understanding what's going to drive that, whether it be cost, customer service, efficiency or execution. Direct engagement with your partners is absolutely critical."
Next, make sure that your own managers and employees buy into managing their supply chain better. "We see many companies going as far as incentivizing their employees for productivity gains and completing process improvement certifications," Eichelberger says. Technology can help improve things like forecasting, order fulfillment times, and inventory carrying costs. Suppliers like SAP, Oracle, JDA Software, and Manhattan Associates sell a range of supply chain management software.
Outsourcing some functions to a third party vendor with a particular expertise can often save a small business time, money, and labor.
"We worked with a manufacturer whose transportation costs were fluctuating wildly," Eichelberger says. "And there was really no communication internally between manufacturing and logistics. So we worked together to develop and implement a technology solution that provided increased visibility to their order pipeline, customer order fulfillment expectations, and an interface that provided visibility to their end customers.."
Collaboration and realistic objectives are key to managing any supply chain. "I would strongly urge small businesses to define goals and objectives, measure against them, really tear down departmental walls, and engage partners," Eichelberger says. "At the end of the day, the companies who are most successful are the companies that can inspire their employees to deliver on the goals, and implement and execute across the entire organization."
"Improving communication is a big, easy way to get a lot of mileage," says Alex Fuller, a former logistics manager and creator of Supply Chain Cowboy, an online resource for supply chain professionals. "Talk to employees. Then talk to your suppliers and customers. Learn what they value and express what's valuable to you."
Giving vendors a report card with a grade on the services they provide can reinforce good performance and also motivate them to improve other functions—but accountability shouldn't stop there. Fuller says that small businesses themselves should ask their customers to give them a grade on their performance.
Keeping score with some kind of dashboard is an inexpensive but powerful way to focus the attention of your employees on goals. For example, when Fuller became manager of a warehouse, he immediately set up a shipping dashboard using basic Excel software: late shipments were posted in red and on-time shipments in green. On-time shipments jumped from 70 percent to over 99 percent. "Suddenly the entire team knew exactly what we were trying to do," he explains. “If you can get some kind of scoreboard or real time dashboard, that's probably going to be your best investment of any technology money if you're starting from scratch."
When other departments saw the positive effect the dashboard generated, they asked Fuller to set them up company-wide. "That really transformed our whole company to accountability and what we're really trying to accomplish," he says. "Depending on what kind of small business you are and how big a part your supply chain plays, you not only have opportunities to improve your own function, but improve the whole company."