Small and mid-sized companies today are just now starting to tap the value of developing and executing supply chain excellence strategies as large enterprises have been doing for years. As the latter companies’ experiences have demonstrated, highly effective supply chains allow a company to operate at peak performance. Executing supply chain excellence strategies can make favorable contributions to return on assets, margin, improved customer service and competitive advantage while generating more reliable metrics by which to measure success and foresee trouble spots.
Given the preceding, and the fact that supply chain-related costs represent between 55 percent and 65 percent of a company’s gross revenues, the supply chain should be getting plenty of attention.
As they think more about how to leverage their supply chain, small and mid-sized companies should consider their targets. On the front end, there’s sales forecasting, demand planning, inventory management, sourcing (materials and finished goods), supplier transportation, and manufacturing (if applicable). On the back end, there’s order management/customer service, distribution/warehousing, customer transportation, product returns, and excess or obsolete inventory disposition.
Regardless of where they choose to devote their attention, executives should be aware of the top challenges they will face as they make changes to their supply chain operations.
Overlooking the continued growth of e-commerce as a channel in the industrial sector. Two years ago, Amazon’s presence as a major seller of industrial products was non-existent. Today, via Amazon.com, the company commands 2 percent of the channel and is growing. One need only to look at what Amazon did in the consumer products sector—and, especially, what the online giant did to established physical retailers of books—to see how this story will play out. To avoid being the next Borders, small and midsize industrial manufacturers and distributors must take ecommerce seriously. That means building multi-channel fulfillment networks that can simultaneously process orders from multiple ordering channels and fulfill them from the source that provides the highest level of customer satisfaction and the lowest fulfillment cost. With customers today expecting more and better ways to be served, multi-channel networks have become key to keeping prices low, providing a leg up on competition, and driving customer loyalty.
Inattention to potential risks. An inability to define potential risks and develop mitigation strategies for those risks that have a high probability of taking place could jeopardize business continuity and profitability. Conversely, companies that tackle risk as a top priority are less likely to face major issues related to scalability and responsiveness to volatile demand. Therefore, small and midsize companies need to create a robust risk mitigation plan that addresses some of the most common and critical supply chain-related risks including supplier quality and performance, commodity price volatility, more complicated product and service mix, lack of visibility to outsourced operations and relationships, inadequate physical distribution infrastructures, and volatile transportation costs—just to name a few.
Unrealistic assumptions that supply chain management technologies will fix everything. There’s no doubt the modern supply chain is now powered by technology, and that technology has become vital to making informed, timely business decisions about how to maximize operational and financial performance. However, for technology to work most effectively, a company must have an explicitly stated and shared corporate vision and mission—not just among external customers and service providers, but also internal constituents involved in the supply chain, including warehousing, transportation, and sales. Furthermore, supply chain management technologies are most effective when they support tight collaboration among these parties and provide visibility into all key aspects of the business.
Overreliance on past performance to predict future sales. If there’s one certainty about today’s economic environment, it’s that nothing is certain anymore. Customer needs are continually evolving, and massive shifts in market dynamics can hit with speed and without warning. That makes plotting a course for the business extremely challenging. Best-in-class companies track actual sales as they happen so the supply chain network has the information necessary to react more quickly to any changes and fluctuations in customer demand. But they also use more than just sales data to help make critical business decisions. Real-time inventory levels, cash flow, and financial metrics also are important to giving decision makers what they need to create forecasts that recognize current and potential future changes that could affect customer buying patterns and the company’s ability to fulfill evolving customer needs.
Continued complexity being added to supply chain operations. As more technologies, processes and "red tape" continue to be layered onto their operations, companies increase their costs of doing business and create confusion about what must be done to realize the corporate objectives and vision. This is especially true of companies with multiple business or operating units. Companies must be vigilant about finding and stamping out unnecessary complexity wherever it exists—for instance, identifying ways business or operating units can share common processes and technology platforms, or having suppliers provide a "reverse report card" that grades the companies they work with on how easy it is to do business with them and illuminates areas that could be streamlined.
Lack of understanding of the full capabilities of suppliers and service partners. In most companies today, suppliers are key extensions of the business model and play an important role in enabling companies to meet customer demands. That’s why it’s critical for companies to know the full range of capabilities and offerings suppliers can bring to the table, as well as any shortcomings among suppliers that could disrupt the business. The last thing a company wants to do is promise customers an increase in response time or the launch of desired new products without being sure key suppliers can support those initiatives. When selecting new suppliers, companies should be rigorous in evaluating all aspects of suppliers’ business (including financial stability and how well suppliers’ cultures mesh with their own). But the work shouldn't stop there. Companies should conduct regular audits and assessments on an ongoing basis to make sure suppliers are keeping pace with their business.
Doing business today is hard, and it’s unlikely to get any easier. Small and midsize companies that are aware of these supply chain challenges—and take proactive steps to address them—will be in a much better position to capitalize on their supply chain’s ability to serve existing customers better, operate more efficiently, penetrate new markets and, overall, grow more profitably.
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