There is Nothing Small about the Impact Supply Chain can have on Small Businesses

Effective supply chain management is important for all business sizes, but it especially essential for small businesses and start-ups.  Supply chain challenges are so significant that they are often the cause that puts start-ups out of business.  I would like to address three main areas where the impact of supply chains can make or break a start-up.

1. Excessive inventory & tied up cash flow
2. On-time customer delivery
3. Product Quality

Excessive Inventory—Cash flow is one of the largest challenges for start-ups.  You can have the greatest product in the world, but if you do not have money for capital infrastructure, if you do not have funds to pay your employees, and if you do not have the money to purchase supplies and component parts, you do not have the ability to deliver product to your customers.  In past posts I mentioned how inventory has a direct impact on a company’s bottom line.  Proper supply chain and inventory management can ensure your precious cash resources are available to add value to your business, not collect dust sitting unused on your shelves.  Let me demonstrate:

$1 Inventory Removed = $1 to your bottom line

At 10% Sales Margin it takes $10 in sales to have the same Impact as $1 of Inventory Removed

          $1 Sales $1 Sales

          $1 Sales $1 Sales

          $1 Sales $1 Sales   =   $1 to your bottom line

          $1 Sales $1 Sales

                 $1 Sales
          $1 Sales Margin

Obsolescence, over-ordering, and lacking management systems are usually the culprits causing excessive inventory (each worth of their own blog post).

On-Time Delivery—Let me begin this section by saying I blame Amazon.  I can go on-line, select my product, make a few clicks, and voila: two days later, my shiny new, life changing purchase shows up on my front door.  For good or bad, these very short lead time expectations extend from consumer to corporate purchasing practices.  Selecting the right vendor, supplier, or contract manufacturer can mean the difference between fulfilling an order and losing a potential customer.  Appropriately applying supplier performance optimization tools can reduce the possibility of a supplier outage.

Product Quality—Companies often do not consider if their supplier has ability to deliver product that is within specification limits.  Significant due diligence and robust analysis techniques are the first steps to understanding a supplier's quality capabilities.  Another common misnomer is that once a supplier is qualified, the quality of the product they supply is fixed and never changing.  The reality of any supplier situation is that things change: tools wear out, audit processes fall apart and employees change.  Repeatability is a big buzz word in the quality world.  It is very difficult to maintain repeatability within your own internal processes, but even more difficult to do so outside your organization.  Supplier performance monitoring tools and supplier development programs are the best way to ensure your suppliers continue to provide high quality parts over time.

I hope this blog entry provides some surface level exposure on the impact suppliers can have on small businesses.  In each section, I alluded to various supply chain management tools.  If you would like further information on any of the tools or management techniques I listed, please feel free to contact me (ryan.miller@yourlocalconnection.net or 720-295-8726).

Photo Credit: Samantha Miller

Fun Fact: Logistics driven costs account for 9.22% of the US GDP (source: Economonitor)