Why Supply Chain Management is Important for Small Businesses

Larger companies are well-known for devoting significant resources to supply chain management. By hiring executives to create entire departments devoted to working with suppliers, streamlining operations, and uncovering efficiencies, these companies reap the benefits, which include lowering expenses, while increasing revenue—and profits.

Supply chain management is just as important for small businesses, who can enjoy these same benefits. In fact, you might even argue that supply chain management is even more important to smaller enterprises, which operate on tighter margins and rely heavily on customer satisfaction for future success.

In that spirit, our experts have put together four tips to guide small businesses as they assemble a supply chain management strategy that supports their long-term business goals.

1. Take Procurement Seriously

As a small business, you may not have the budget to hire a full-time procurement manager. However, that doesn’t mean you should tack it on as an afterthought to someone else’s job description.

Here’s why: Inconsistent service from your suppliers can break a small business. Let’s say that your main supplier runs low on stock and delays delivery of your order, a real possibility if you’re one of your supplier’s smaller accounts. This, in turn, can slow down your manufacturing processes and even result, for example, in late delivery on a big order to a new customer. As a result, your customer might start looking for someone else to buy from, and word may spread that you’re unreliable—all because your supplier wasn’t able to deliver.

However, if you have someone on your team who’s trained and proactive when it comes to procurement, he or she would likely line up some alternative suppliers you can turn to. Or, if this person has spent the time to develop a relationship with the supplier, perhaps he or she wheedle out enough supplies to fulfill your big customer order. However, if you haven’t given this person the training and the bandwidth to focus on managing your procurement, you’ll simply be stuck.

2. Get Creative in Managing Your Relationship with Suppliers

In certain ways, when it comes to supply chain management, small businesses have a bit of an advantage over larger businesses because they generally have fewer moving parts to manage. There are fewer suppliers to keep track of, less inventory to manage, and fewer modes of distribution.

That being said, small businesses do face a significant disadvantage when it comes to negotiating with suppliers. Due to the lower volume of purchases, your small business may be a lower priority than another business with more buying power.

Our advice? Get creative when negotiating with your suppliers. One of your most powerful bargaining chips will be repeat business. You might not be your supplier’s biggest customer, but you can surely be one of their most regular ones. The promise of a long-term commitment might give you some bargaining power.

Alternatively, if you know of another business that might also use this same supplier, you could join forces and negotiate a larger agreement together. For example, Harvard Business Review tells the story of four banks who formed a coalition to buy ATM parts and maintenance as a group, which forced the supplier to take the group’s needs seriously. Creating a coalition with another small business or two could give you more buying power—and more leverage.

3. It All Comes Back to Managing Your Inventory

As we mentioned earlier, as a small business, your relationships with your customers are everything. In order to build your reputation in the marketplace and establish the long-term relationships that are crucial to your success, you need to be able to fulfill your customers’ orders with regularity. If you’re constantly running out of stock or delaying delivery, you’ll erode trust with your customers. If it happens often enough, they may start to look elsewhere for their needs.

That said, small businesses need to strike a balance when it comes to inventory management. It’s important to have enough inventory in stock to fulfill customer orders, but you don’t want to let items languish in your warehouse, which will result in higher inventory carrying costs. The bottom line is this: Too much inventory will tie up your capital and raise your expenses. Many small businesses struggle with cash flow, and unsold inventory can be a major contributing factor.

The solution? Manage your inventory with precision, leveraging sales forecasts to guide your decisions. You might also explore whether just in time (JIT) might be a good philosophy on which to build your supply chain. It has its pros and its cons, but it’s worth investigating, especially for smaller businesses.

4. Invest in Your Supply Chain Success

Just as we suggested investing time and energy in the person who’s managing your procurement, we also suggest investing in another area that can prove crucial to your supply chain success: software.

If you’re managing a significant number of suppliers or customers, supply chain management software can make it simple and easy to track all of the moving parts. Additionally, by capturing data around every link in the chain, software can make it easier for a business to spot trouble areas and eliminate inefficiencies. It can also help you manage your inventory more effectively and assist in spotting trends.

Especially if you don’t plan on being a small business forever, supply chain management software can be a smart investment for your company. By giving you the data and the tools you need to bring new efficiencies to your supply chain, you’ll also have everything you need to scale up and take your business to the next level. In other words, when you’re ready to go big, you can do it with the confidence that you’ll be able to maintain the healthy margins that ensure your company’s longevity.

For Supply Chain Success, Start Small

In a small business, everyone wears a lot of hats—and everyone has a lot on their plates. However, it’s important to prioritize managing your supply chain with care and precision. By doing so, you can better secure long-term relationships with your customers, maintain the healthy cash flow you need to keep the business running, and protect your margins to ensure your business turns a profit. These four tips will get you started in terms of giving your supply chain the priority it deserves, setting the stage for a long, healthy future for your business.

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Want more help managing your supply chain? Start with a complimentary consultation with one of our experts. We’ll help you evaluate your current situation, uncover potential efficiencies and put together a strong supply chain strategy that allows you to easily scale your operations—and your profits along with them.