Supply chain breakdowns continue to stymie small businesses, causing them to lose sales and profits. Whether your business has been affected or not by supply chain delays and shortages, it’s a good idea to take steps to make your supply chain as resilient as possible.
Your supply chain starts with gathering the materials that go into what you sell, including the production of your products and services. The supply chain doesn’t end until the customer receives the product or service you offer, as well as any help they might need to utilize your product.
Next is a process to help you evaluate your supply chain, improve its resilience, and hopefully avoid future bumps in the road.
Start with an Inventory of Your Suppliers To evaluate your supply chain, a good place to start is to make a list of vendors. An easy way to get this vendor list is from your accounting system, such as QuickBooks Online, which your favorite Team One bookkeeper can assist with. Next, make lists from your list:
- Primary vendors that are crucial to your business. This includes vendors from which you purchase goods for resale, and can also be vendors such as your online shopping cart because if it goes down, you lose sales. These are your vendors that you could not do business without.
- Secondary vendors that provide support indirectly, such as maintenance to machines you use or vendors that provide human resource benefits. Your business won’t be terribly disrupted if something happened to these vendors; you will still be able to operate.
Once you’ve made your lists, let’s focus on your primary vendors first. If this is a large list, you may want to further prioritize it by sorting the vendors you are most dependent on to the top of the list.
Contingency Planning
For each vendor on your primary list, do some research to find alternatives. You want to develop a deep bench of suppliers who can support your business. If one supplier has trouble meeting your orders, you will be more prepared and can consider switching vendors in order to meet the demands of your business. You’ll need to develop relationships with these alternate vendors, and perhaps even use them a time or two to test the relationship and standards.
Many factors can go into selecting alternate vendors: price, quality, service, delivery time, shipping costs and methods, country of origin, location of warehouses, troubleshooting effectiveness, and much more. You know your industry and what you need best, so you can develop a table of criteria to evaluate potential new vendors. The ultimate goal is to have backup plans all along your supply chain.
Once you’ve gone through your primary list, you can start on this same process on secondary vendors.
Purchasing Department
Large companies have entire purchasing departments to do this kind of work. If your business is small, you may be able to delegate portions of the list to trusted and well-trained employees.
Know that this type of work can take a long time, and it will also be changing frequently as new vendors spring up and older vendors retire or go out of business.
Internal Operations Including Selling and Distribution
Now that you’ve taken care of your suppliers, the next big step in supply chain efficiency is to standardize your operations. To do this, first take a look at your internal operational processes to ensure they are as efficient as possible. Then, create policies and procedures to ensure product quality and customer satisfaction.
This includes reviewing the production process as well as the selling and distribution process, all the way to customer service. You may have covered this while you assessed your vendor list, but if not, you can do it now.
Again, this is a marathon, not a sprint! Take your time to do this project right, and it will benefit you for years to come.
Risk versus Reward
In some cases, it may simply not be cost-effective to have a fully developed contingency solution. It may be more cost-effective to take the loss if it happens. You’ll want to evaluate the circumstances and come up with the right solution that works for your business. If you need assistance with this decision, your local Orange County bookkeepers can help evaluate your financial reports with you.
Take the time you need to improve your supply chain resilience, and your business will be more valuable and more profitable for it.
