Research by the Federation of Small Businesses (FSB) found that 77% of companies in the UK are part of supply chains, but 65% of small businesses don’t have a plan to cope with disruptions to their operations.
By mapping your supply chain, you can put strategies in place to rapidly react when a supplier faces a shortage, an order gets lost in the system, there’s a surge in demand or something even more unexpected happens. You also develop a deeper understanding of the surrounding costs, timeframes, and risks, and thereby gain an advantage over competitors who lack this important knowledge.
Understanding your supply chain
A supply chain has two main components:
- Entities: The businesses you rely on to help you source materials, process them, pack and ship finished goods. These include wholesalers and vendors, warehouses, transportation companies, distribution centres, retailers, and customers.
- Functions: The processes that connect the entities in the chain. For example, you’re connected to your supplier through sales and finance channels via email and phone calls; you’re connected to customers through your online store and retailers; and your product is connected to wholesalers, your warehouse, and buyers through physical transportation.
How to map your supply chain
Mapping your supply chain is a five-step process in which you create a visual representation of all the entities and functions that exist within and around your business.
At each stage, you can ask questions to work out if the process could be more efficient, or less risky, expensive or time-consuming.
1. Identify everyone who contributes to the production, storage and distribution of your product. You can document the name of the business and your points of contact either on paper or using supply chain planning software. You may have different supply chains for different products.
- Are you using the most efficient communication channel for the key businesses? Perhaps you could suggest creating a dedicated space for consistent, real-time communication with the contractor who handles your returns (such as a shared channel on Slack).
2. Understand the relationships between all parties (e.g., are they each other’s sole supplier or one of many?).
- Ask your first-tier suppliers to join the mapping process. They can then send the same invitation to second-tier suppliers, and so on. Each entity details what they sell, to whom, and what they buy next in the chain. As the map expands, you and your suppliers get a better view of potential risks, bottlenecks, and the dangers of relying on single suppliers and businesses with long lead-times.
3. Establish costs and time frames involved in each part of the chain.
- Which functions offer the most and least value to your business? It can be helpful to think of the supply chain as a “value chain” by considering how costs and time frames either produce or prohibit value. Calculate how long each element takes on average, including small things (e.g., receiving an email reply from your supplier) and bigger things (e.g., transportation of goods to the customer).
4. Acknowledge the risks associated with each entity, including political, legal, economic, and environmental threats.
- Are unseen silos increasing the risk of disruptions? E.g., between procurement, marketing, sales, and fulfilment, or between your business and your suppliers and customers? Can you remove these silos by improving knowledge sharing?
5. Track the flow of information and data through the supply chain. Transferring information efficiently, including orders, shipments, and returns, can be as important in controlling costs as the movement of physical goods.
- Can you use automation software to streamline the flow of information, including payments and invoicing, order fulfilment, and inventory updates?
The benefits of mapping your supply chain
By mapping your supply chain, you can:
- Identify where value is added or lost. E.g., Quality issues with your raw materials could be slowing down production
- Mitigate the impact of risks ahead of time. E.g., How would your brand be affected if a third-tier supplier broke environmental laws?
- Strengthen the entire chain. By bolstering relationships between companies in your supply chain through clear communication, you help them better understand their place in the business ecosystem, including your expectations and goals.
- Streamline and speed up processes. By analysing the connections between the entities in your supply chain, you can spot where delays originate and focus on fixing them. E.g., You have three suppliers from whom you buy the same materials. One is 30% faster at fulfilling your orders than the other two. Can you order more from the faster supplier, or negotiate with the others to speed them up?
- Discover the elements that most affect your cashflow. Some suppliers may have shorter payment terms, and some customers may tend to pay later than others. In fact, research by FSB showed that the biggest risk to smaller suppliers’ supply chains was customers failing to pay for goods or services. If mapping your supply chain shows that your cashflow is at risk, you could benefit from using a Business Card to pay expenses.