Supply Chain Management: What Small Businesses Need to Know

What is supply chain management?

Supply chain management is a conscious effort to run supply chains in the most efficient and effective way possible. Such strategies include product development, sourcing, production and logistics, each of which assists in creating quality products and coordinating their flow to the consumer. The supply chain exists in many different forms, but the most common structure contains four separate entities:

1. Suppliers. These entities provide the materials needed to create the product, whether they’re raw materials or individual parts to a finished product. For example, Apple’s iPad comes from a variety of suppliers: Samsung manufactures its processor chips, LG produces the touchscreen display, and Toshiba creates the flash memory.
2. Manufacturers. This stage of the supply chain entails bringing together all of the parts provided by suppliers to create the finished product. To continue the example, Apple would take each individual part from the suppliers and put them together to create a finished iPad for distribution.
3. Distributors. These entities store and sell the finished product, either at a physical storefront or through an online store. Locations like Apple stores and Walmart provide physical locations where consumers can buy an iPad, whereas online distributors ship the iPad directly to a consumer’s door.
4. Customers. Consumers create demand for products and ultimately influence the quantity of products and the overall supply chain structure.

The organizations that constitute the supply chain are linked together through both physical and informational means. The physical element involves the creation, shipping and storage of goods — the obvious, visible part of the process. However, the informational element that allows supply chain partners to communicate with one another and control the flow of goods is also critical.

Andrew Lynch, president of Zipline Logistics, told Business News Daily that having a strategy in place for an organized supply chain is vital to the success of a business.

“Without a strategy, supply chain and transportation run the risk of becoming cost centers that can negatively impact a brand,” Lynch said.

How to choose supply chain partners

A single business can’t coordinate every part of the supply chain itself, so it’s necessary to pick some supply partners. Lynch suggested asking the following questions to help you choose the best supply partners for your business:

• Can the partner grow with you and serve a larger customer base as your company expands?
• Can they provide any additional benefit, like niche expertise, helpful technology or other resources?
• Does their organization match your company values?
• What do their current or previous customers or partners say about them? Are they honest? Are they responsive?
• Are they in a good area that drivers can easily reach?
• What kind of investment do they require upfront? Is the cost necessary, or can you function without it?

Reducing supply chain risks

Risk management is a key driving force to creating an efficient supply chain. Reducing the costs of a supply chain carries inherent risks of reduced quality and unreliable shipping times. Common practices like outsourcing, offshoring and lean manufacturing all create increased risk levels. Industries should seek the right balance of risk and cost, using more modern approaches such as supply chain redundancies, information tracking, flexible supply contracts and risk assessment measures.

Lynch warned against cutting corners to save money on shipments. Rather than adding more overhead, small businesses are better off finding a partner who can take the work of transportation off their plate, he said.

“Looking for transactional savings on shipments can hurt businesses in the long run,” Lynch added. “While $20 to $100 savings will be seen immediately, the long-term costs and impacts are significant.”

Lynch also recommends paying careful attention to your transportation provider. He points out that the transportation provider is often the last person to interact with your customer, and so gives the last impression of your brand.

How to handle a disruption in your supply chain

Part of strategically managing your supply chain is being prepared for disruptions. Disruptions can occur for a variety of reasons, but it’s especially common in the event of natural disasters, such as hurricanes, earthquakes, tornadoes or wildfires. According to Zippia, supply chain disruptions increased by 14 percent between 2019 and 2020. 

Ken Katz, national property risk control director for Travelers, suggested planning ahead for such disruptions.

“According to the Travelers Business Risk Index, only 28 percent of small businesses have a business continuity plan,” Katz told Business News Daily. “We recommend businesses always prepare for the worst and don’t assume that employees and suppliers will know what to do. It’s best to have a documented plan that includes information on secondary suppliers and other backups.”

Katz said that your business should identify threats; conduct a business impact analysis; create and adopt controls for prevention, mitigation and recovery; and test and adjust your backup plan often so that your business can be prepared and experience the least disruption possible for customers.

Did you know? Being proactive in identifying potential supply chain risks can help you put backup plans in place in the event you need to react to a problem. 

In the event of an emergency, you can start to recover by first reaching out to secondary suppliers, said Erika Melander, director of manufacturing operations with Central Insurance. Communicating with customers is also important, she said.

“Regular communication with customers and suppliers is essential until the supply chain has recovered,” Melander said. “This level of transparency helps to reinforce that there is a plan in place. It is also important to communicate with employees about next steps and how their day-to-day jobs might be affected.”

Melander also recommended that businesses obtain proper insurance as early as possible into their operations, so that in the event of a disaster, they’ll be able to get things up and running again quickly. She suggested contingent business interruption coverage as a possible insurance solution, and encouraged businesses to regularly check with insurance agents regarding coverage.

Managing your supply chain impacts the bottom line

Moving goods from one location to another can be a complex endeavor, with opportunities for error, inefficiencies and added costs at many points along the supply chain. Understanding how to optimize supply chain operations through best practices and the informed selection of competent vendors can help minimize risks while ensuring an exceptional customer experience. 

Additional reporting by Linda Pophal and Ryan Goodrich.