Whether you are the owner of a new startup or the CEO of a business that is rapidly growing, your business success is inextricably linked to how well your supply chain performs. If you want to be successful with your business, it is inevitable that you take steps to ensure the supply chain is successful too. In 2014, a Deloitte survey found that almost eighty percent of companies with supply chains performing at a higher-than-average rate achieve above average revenue for their industries. In comparison, just eight percent of businesses with lower-than-average supply chains report an above-average growth rate, with these figures clearly highlighting the importance of the relationship between a company and its supply chain.
With around half of all businesses, no matter their size, failing within the first one to five years of business, it’s clear to see that poor supply chain performance is likely to be a common reason for this business failure. So, what part does the supply chain play when it comes to business success?
Supply Chain Strategy
Another survey in 2014 carried out by Tompkins Consortium provided interesting results. Over half of the business leaders and owners surveyed considered the supply chain to be a standalone business operating function and did not recognize the need for there to be a close relationship between the supply chain and other general business strategies. The results of this survey demonstrated that many businesses today are still unaware that the supply chain is often the lifeblood and the heart and soul of any commercial enterprise.
If you are running a company that has not placed a lot of focus onto supply chain strategy, there’s no better time than right now to start with this. You can improve your understanding of the supply chain with this online supply chain management master’s degree from Kettering University, providing you with the knowledge, skills and tools necessary to come up with a well-designed supply chain strategy that helps you achieve your organizational goals and achieve business success.
Impact on Customer Satisfaction
Profitable revenue growth is a sure sign of business success, and this is often driven by customer service and satisfaction levels, since satisfied customers will always tend to spend more and be more loyal to a certain company. However, it’s important to understand the impact of the supply chain on customer satisfaction. To achieve success with your business, it’s important to bear this in mind throughout all supply chain management strategies. The customer should always be a primary focus and priority when considering factors such as supply chain strategy, network design and performance management. Eighty percent of businesses expect to compete on the basis of customer experience alone, according to a Gartner study. However, the overall performance of your supply chain will inevitably impact the way that customers perceive your business and the customer service that they receive.
Unfortunately, the weakest link within the supply chain will often determine just how strong it is. Often, some of the links in your supply chain are not going to be under direct control of your business, which can cause problems. In fact, to some extent, your suppliers may have more control over the success, or lack thereof, of your business. Because of this, it’s crucial for companies to work in collaboration with their primary suppliers to keep any supply chain uncertainty to a minimum.
In the supply chain, any level of uncertainty can be an expensive problem that may have a negative impact on customer service, causing serious disruption to overall business performance. To ensure protection against inventory shortages and supply bottlenecks that have the potential to hinder your business success, it’s important for the company to collaborate well with key suppliers. It is also crucial to bear the customer perspective in mind. From the customer’s viewpoint, there is very little, if any distinction between your company’s performance and supplier performance. Companies that succeed recognize and understand this and respond accordingly.
In recent times, there has been an increase in the number of brands suffering from reputation loss and, in many cases, revenue loss as a result of unethical supplier practices. Issues with corporate responsibility can have a negative impact on any business, even in the case of unethical supplier practices happening further down the supply chain. While this may be easier for larger companies to recover from, it can be a particularly problematic issue for startups and other new enterprises trying to make it in their industry. Any public knowledge of an association with an unethical supplier could quickly be the fall of a company, leading to the demise of a business and financial failure as a result of customer reactions to the wrongdoing. Because of this, out of sight should never equal out of mind as far as the supply chain is concerned, particularly if your supply chain operates internationally.
Today there are not a lot of businesses that do not rely on inventory. Even for businesses that primarily offer a service rather than a product, there’s a high chance that there will still be items that need to be moved through a supply chain. Whether you are moving consumables, equipment, or something else, anything that needs to be stored and transported will need to be treated and managed as inventory. When a company provides products to customers, it’s absolutely essential that they are able to manage inventory effectively and efficiently. The success of the company depends on this almost as much as it depends on having a customer base. Once the inventory has been passed to your hands from suppliers, how it’s managed can make or break the success of your business as a whole. Inventory management has a direct impact on your cash flow and working capital, and thoroughly investigating inventory management is crucial for reducing working capital within the company.
Common Supply Chain Errors Businesses Make
Supply chain mistakes are made on a daily basis by companies of all sizes and across all industries. In the best-case scenario, they can be expensive to deal with, and in the worst-case scenario, they could lead to the total failure of a company. The bigger an industry is, the easier it will become for mistakes to be made, and the supply chain industry is certainly one of the biggest out there, currently estimated at $1.3 trillion and growing.
Mistakes in the supply chain can be extremely costly to a business, whether it’s a missed opportunity or a complete error. A mistake can have an impact on the organization’s overall cash flow, lead to poor customer service and have an impact on sales, and ultimately reduce the company’s profitability. The good news is that once you are aware of the problem and are able to get to the root of it, many common supply chain errors can easily be rectified and avoided in the future.
Ineffective Cost Reduction
Most organizations will be somewhat familiar with the struggle to reduce costs. And it can become more and more difficult to reduce costs further as time goes on and all the easy cost reduction is gained. Reducing how many times products are handled between being received from the supplier and delivered to the customer is a simple way to keep supply chain management costs down. If the product is being handled more than ten times throughout the process, chances are that there are steps that can be removed.
Ignoring Supply Chain Data
Data has quickly become the most valuable assets for a company, and it is generated on a constant basis in operations and global supply chain management. Today, companies generate a huge amount of data including product testing data, transactions, pricing agreements, material costs, logistics, and tacit data. It’s important to avoid the mistake of passing up the opportunity to examine the kind of data that can be used to make better future business decisions. By using the data that is available to them, companies are better able to develop the appropriate strategies for better supply chain management.
Working with Too Many Partners
Launching a new product with multiple suppliers simultaneously is not usually a good idea for the majority of companies and will usually only work for billion-dollar brands with very tight process controls, a solid support infrastructure, and a very high global demand for new products. Otherwise, doing this can result in a large number of added complexities that can have the opposite effect and increase the risks that you are attempting to mitigate. When a product is launched with multiple contract manufacturers, the company owner will need to manage multiple versions of everything, which is a much more complex process compared to doing the same things twice. Most of the time, launching a new product with multiple contract manufacturers is extremely complex, leading to the creation of more problems than it will solve.
No Business Disruption Plans
Companies need to be prepared for any kind of disruption – something that has become even more apparent right now, due to the impact on the supply chain over the past couple of years as a result of COVID-19. To be prepared for supply chain issues and disruptions, companies need to focus on making sure that they have a solid risk management plan in place. It’s crucial to perform rigorous analysis of the supply chain network in order to uncover any vulnerabilities and better manage risk. A supply chain disruption can pose a large risk to a company of any size, and even the most well-prepared businesses could become a victim of unforeseen factors that are not within their control such as cyber- attacks, geopolitical actions, and natural disasters. Common supply chain disruptions include:
- Unreliable Delays or Transport: It’s important to know your transportation partner well. Before choosing, it’s crucial to do your homework and make sure that you are working with a company that you can trust to meet your needs even in cases where certain delivery avenues are disrupted. When you start working with a new transportation partner, make putting an agility plan in place a priority.
- Price Fluctuations: It’s crucial for companies to be prepared for price fluctuations by regularly analyzing trends in the market and predicting fluctuations. Price fluctuations may be caused by unexpected natural events, in which case, it is important to become familiar with labor shifts as a result of climate change trends and other natural occurrences.
Ineffective Vendor Relationships
There are several factors to consider when negotiating with vendors, including price, customer service, and performance. When it comes to vendors, one common mistake that companies will make is to choose a vendor based on prices alone. Instead, it is important to find vendors that not only offer prices that are within the budget for your organization but are also willing to work with you as a partner and offer a range of solutions designed to assist with any supply chain issues that might arise. Ultimately, this type of vendor relationship is more beneficial to the bottom line, leading to better employee performance, inventory reduction, and more efficiency.
No Physical or Cyber Security Controls
In the supply chain industry, security breaches occur more frequently than anybody would like, and the majority are often down to a lack of intellectual property security measures in place by vendors. In order to ensure that security breaches are avoided, it’s important that vendors serving the supply chain are able to secure their networks using a range of best practices. Vendors that overlook security issues and flaws may often put a business in a situation where sensitive customer and supply chain data is disclosed, which can lead to business operations being interrupted or even harmed beyond repair in some cases. Employing secure supply chain data, reporting, and measurement practices, and a solid understanding of sensitive data collection points and repositories, can help to keep any security compromises to a minimum.
Supply chain management has become one of the most important parts of running a successful business. Understanding the impact of the supply chain on business success and being aware of common mistakes to avoid can have a direct effect on success and profitability.