Effective supply chain management is crucial for business performance and can have a range of benefits, including the streamlined flow of goods and services as well as improved customer satisfaction.
Supply chain management has never been so complex as businesses manage production, distribution and inventory across multiple continents. Technology can be a critical tool to help in this area as it can provide visibility of your supply chain from end-to-end, alerting you to pinch points and inefficiencies. However, research reveals that some business leaders are yet to implement a robust technology solution with 85% saying they struggled with inefficient digital technologies in their supply chains .
We spoke to Rajdeep Gahir, CEO of Wing It Cosmetics, a bespoke cosmetics manufacturer with suppliers in the UK, Asia and Europe, and Chris Eccles of global recruitment technology company Employment4Students to compile the eight most important benefits of effective supply chain management to help you identify what it can unlock in your business.
Important benefits of supply chain management
- Better collaboration with suppliers
- Better quality control
- Shipping optimisation
- Reduced inventory and overhead costs
- Improved risk mitigation
- Stronger cash flow
- A more agile business
- Better visibility and data analytics
1. Better collaboration with suppliers
Suppliers that understand the business’s cost constraints and objectives can be particularly important for businesses with tight margins. Wing It Cosmetics’ Gahir says that manufacturers selling to retail outlets that expect a 40-50% markup on the factory gate price can face a profits squeeze if raw material prices are too high. She recommends when negotiating with suppliers, retail-facing businesses should aim for a "golden ratio" of no more than 25% for raw material prices as a percentage of retail sales.
But cost is not the only consideration. Flexibility matters too. In volatile market conditions, Eccles of Employment4Students found that long-standing suppliers were often more willing to accommodate temporary cash flow difficulties. While it’s tempting to shop around for cheaper alternatives, Eccles warns against it. “Be cautious about switching purely on cost and remember that long-term relationships are valuable,” he says.
And, when it comes to paying suppliers overseas, wherever they might be based, you can manage currency fluctuations and make settling invoices safe and simple with American Express FX International Payments, which offers same-day exchange rates on eligible transactions in over 80 countries, regardless of whether you have an American Express® Card or not.¹
2. Better quality control
When you and your suppliers are working to the same standards, quality control problems can be detected earlier. Gahir gives an example: “One of my packaging suppliers contacted me to say that a batch of packaging that had just arrived wasn’t up to the required standard and she planned to send it back, which would add three days to the delivery schedule.” However, for Gahir, this delay was a better outcome than having to deal with a defective batch of packaging herself. Emphasising the benefits of trust in supplier relationships, Gahir says: “That conversation was only able to happen because we're on the same page.”
3. Shipping optimisation
Logistics costs are set to rise significantly, potentially impacting small businesses across the UK. Reducing the number of separate distribution channels and making use of logistics specialists could reduce your distribution costs relative to your competitors, helping you to maintain stronger cash flow and profits. “Having too many suppliers with independent shipping and delivery streams has been the biggest source of inefficiency,” says Gahir. “We’ve responded to this by looking at storage and shipping aggregators.”
4. Reduced inventory and overhead costs
An efficient supply chain can reduce the need to maintain inventory, therefore cutting overhead costs associated with storage and security. However, a very lean inventory increases pressure on distribution networks and reduces resilience to supply chain shocks. So it’s important to identify your optimal inventory level.
5. Improved risk mitigation
In general, the further along a supply chain a problem is detected, the more expensive it is to fix. That’s why supply chain management, which offers visibility of the supply chain from end-to-end, is so important.
For this reason, around 50% of supply chain leaders own all of the six "links" frequently associated with supply chain management: product development; demand planning; supply planning; sourcing and procurement; manufacturing; and logistics and distribution .
6. Stronger cash flow
Running an efficient supply chain that is based on good supplier relationships, maintains strict quality and stock control, and keeps a watchful eye on costs and prices can greatly benefit a business’s liquidity by improving cash flow.
7. A more agile business
“A good supply chain enables us to adapt to opportunities,” says Eccles. For example, Employment4Students identified a process inefficiency in a client’s business. Eccles explains: “We realised we had a couple of suppliers whose software could help and managed to get a process in place really quickly, which they adopted and found really helpful. So, if you’ve got good suppliers, they can help you unlock new opportunities.”
As always, however, it pays to be prepared, as supplier capacity can impede business opportunities. Gahir says that it’s worth investing more up-front to ensure that the suppliers you have in place are able to scale up as your business grows.
8. Better visibility and data analytics
Business managers can keep in constant touch with suppliers using mobile phone apps, conferencing platforms and shared dashboards. Software tools can also help to manage stock levels efficiently, track distribution channels and monitor business performance. Having real-time data metrics at your fingertips will enable you to put in place contingency plans to enable your business to ride out storms and take advantage of opportunities as they arise.
As you set about improving your supply chain and enjoying the business benefits of efficient supply chain management, you can take control of how you pay your global suppliers and make international payments simple, secure and rewarding with our Foreign Exchange International Payments platform. It offers same-day payments on time-sensitive orders to suppliers², and you can earn Membership Rewards® points on every transaction you make, which you can redeem for rewards in travel, dining and entertainment³.
- For EUR and USD payments only, provided the GBP is received before certain cut-offs
- We will make all reasonable efforts to ensure prompt delivery of your FXIP Order, however please note transfer times may vary. Remittances to be delivered outside the EEA may take longer than the execution times listed above. These Transfer Times do not take into account differing weekends, public holidays or working hours of foreign banks in other jurisdictions to which your FXIP Order has been transferred. Completed FXIP Orders must be received on a Business Day before 3.00pm London time. FXIP Orders received outside these times will be treated as having been received on the following Business Day.
- The Membership Reward programme is only available when carrying out a foreign exchange payment to a different currency and only on transactions between £1000 and £100,000, any same currency transaction will not be eligible for the Membership rewards points.