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The Importance of SCM for Small Businesses

15/02/2021 minute read Daniel Docherty

Securing a reliable supply chain is one of the bedrocks of a successful business.

Without it, you won’t have the security of knowing that you can get what you want when you want it, at the price you expect to pay.

As you start out, trying to find a supplier here and there might seem like the easy option, but having a firmed-up supply chain is key for your business as it grows.

And if you think good SCM is something only for the big players, think again. Small and medium-size businesses have enough challenges without having to worry about what is happening upstream in the manufacturing process.

What is supply chain management, and why is it important?

SCM is all about the relationship between you and the people you rely on to help you fulfil your orders and keep your customers happy.

If you have a poor supply chain, you risk having to work with substandard materials, causing delays for your customers, running up unnecessary costs and, ultimately, losing business.

If you fail to fulfil an order satisfactorily, your customers don’t care where the problem lies – they just know they haven’t got what they expected. As far as they’re concerned, you and your supply chain are one and the same. It’s irrelevant to them whether the problem is in your factory or if it is caused by a bottleneck further up the line.

What are the benefits of supply chain management?

Effective supply chain management will help you cut your costs, improve your manufacturing efficiency and enable you to cope with growing demand. It is key to a smooth production process, and it will help you sleep at night if you know that your supply partners can be relied upon to deliver when they need to.

In essence, good SCM means you can be assured of what you are receiving, and you can continue your operations with the confidence that what you require will be with you on time, in the right quantity and at the price you expect.

It will lead to increased efficiency for your production process. Knowing that your supplies will be there on time means you can concentrate on your end of the bargain. Your internal operations might be as efficient as they can be, but that will count for nothing if the components you need aren’t at your fingertips when you need them.

Furthermore, if you are permanently searching for materials, that means extra time, stress and cost.

How can your supply chain be improved?

Communication is key

What materials and components do you require? How often? What is your lead time?

Your customers demand certainty from you, and you should expect the same from your suppliers. But they can get it right only if they know what you want.

Your suppliers are businesses themselves, and they want to deliver on time for you. Many of them will be small operators keen to establish their own customer base, and they will want to accommodate you. But they need to understand your requirements.

As you grow, those requirements might change. You might start to produce new lines or break into new markets. Or you might simply be increasing your existing output.

Either way, your supply chain will need to adapt with you, but it will need you to guide it.

You’re in control

Don’t fall into the trap of thinking you are too small to call the shots. You might not be your suppliers’ biggest customer at the moment, but that doesn’t matter. As you grow you will become ever-more important to them, and they will want to share in your continued success.

Get to know them. Establish regular channels of communication and speak to them regularly. They will appreciate your feedback as much as you appreciate it from your own customers.

Developing a strong relationship now will lay the foundations for an ongoing partnership, and your supply chain will benefit as it grows alongside you.

It should be a mutually beneficial relationship, and your suppliers can share your success thanks to bigger and more frequent orders from you.

Managing the risks

Risk can never be eliminated but it can be managed.

Hoping for the best but planning for the worst is a philosophy that should permeate your business, and it’s no different when it comes to SCM.

Ideally, your established supply chain will remain in place for a long time, but it is important that you carry out due diligence before making any decisions.

Where are your suppliers based? What are their other commitments? What are their track records?

Don’t simply rely on a Google search. If you’re a member of any business groups, pick their brains for information they might have on potential suppliers. Do they deliver on time? Have they got established relationships with other manufacturers?

You should also keep an eye on things throughout your relationship. If a supplier starts asking for different payment terms – perhaps requesting cash from you up front – it’s worth making discreet inquiries to see if it’s part of a wider issue. Has it lost contracts elsewhere, for example? Is there a cashflow problem?

And although you might want to remain loyal, it’s good to have details of other suppliers to hand. If something does go wrong within your supply chain, you need to be able to take quick action rather than risk business interruption while you look for a different source for your materials.

Other things to look out for

It’s a good idea to think about confidentiality agreements with your suppliers, particularly if you have trade secrets you want to keep to yourself.

It’s not simply to stop your suppliers doing you a disservice – sometimes they might simply not realise the commercial sensitivity of your business. Ask if they have internal procedures in place that prevent their employees who move elsewhere taking your information with them.

Traceability is another key concept here. Do you know that everything further up the supply chain is ethically sourced? Your reputation – and sales – will take a hit if it turns out that you are using components made by slave labour, or if your supplier’s supplier has a poor environmental record.

Supply chain management software

Once you have got to grips with these basics, consider what sort of SCM software you require. This sort of investment will repay you many times over. It can work across your whole business, coordinating your supply chain with inventory planning, the production process, storage and distribution.

Whether you have adopted Just In Time manufacturing or you work on the basis of always having a supply of components in stock, your SCM software can help keep things running smoothly.

It can also ‘talk’ to other software, such as that used by your accounts department, for example. And as you grow, so the software grows with you – it will easily adapt as you add more suppliers to your roster. You won’t find yourself having to hit the phones to see if your suppliers can cope with your demands, because it will all be fully automated.

SCM software that can track the end-to-end process – from your suppliers right through to your customers – goes a long way to helping your whole business operate seamlessly.

If improving your supply chain management systems is on your business agenda, learn more about our Manufacturing software solutions today.