Today’s customers know what they want – and when they want it. As a business owner, your job is to meet your customers' needs in the most cost-effective and efficient way possible. The key to doing this is managing your supply chain.
Getting the right supply chain strategy ensures that you can maximise the ROI from international and local suppliers while keeping your customers happy, two essential outcomes for long-term success. Here we share SME strategies (with pros and cons) to help you decide which supply chain strategy is right for your business.
What is a supply chain management strategy?
A successful supply chain strategy should outline how your organisation manages the entire journey of your product, from pre-production to the moment it lands in your customer’s hands. It should also highlight activities such as production, supplier management, inventory management and transportation.
Why is strategic supply chain management important?
Building an effective supply chain management strategy means you are improving the efficiency and value of your product’s journey. For example, identifying a more effective way to source raw materials could make your product cheaper to build. Finding a way to consolidate shipments and reduce transport costs could help you make deliveries more quickly. This sort of supply chain optimisation can help you to:
- Reduce costs by improving the efficiency of processes
- Build better relationships by working more closely with suppliers
- Drive bigger profits by driving efficiency and cutting costs
Read more about the benefits of effective supply chain management.
What to consider when creating a supply chain strategy
As an SME owner developing a supply chain strategy, there are three key elements you should consider:
Your supply chain strategy should set out how you find the suppliers that will bring value to your organisation, and how you will confirm that they are cost-efficient, reliable and provide the best quality product or service.
Ethics and sustainability
Growing consumer concern and changes in legislation both mean that it’s becoming increasingly important to engage with suppliers and partners that share your values and align with your code of ethics (ensuring there are clear policies around sustainability and human slavery, for example).
Clothing retailer Seasalt places a huge focus on long-term partnerships with its overseas suppliers, says James Hampton, the company’s Head of Development and Engagement. “The key to our supply chain and the relationships we have going back almost two decades is trust and regular communication. That is how we can ensure the quality and provenance of products, which is essential to our wider business strategy.”
Seasalt recently signed up to the Ethical Trading Initiative (ETI) and is working with other companies to understand more about sustainability, information that is shared down the supply chain. “We require all the suppliers we work with to commit to the ETI base code.”
One of the most important elements of any strategy is how organisations approach supply chain risk management. What happens if a factory must close, or bad weather prevents a shipment from reaching its destination on time? Make sure your suppliers have contingency plans to tackle any supply chain issues and ensure these are built into all your third-party contracts.
3 supply chain strategies for small businesses
1. Demand-driven supply chain strategy
A demand-driven supply chain focuses on meeting demand from the consumer. This means looking at historical data about what customers need, then sharing this information with everyone in the supply chain so that products can be created more efficiently.
The advantage of a demand-driven supply chain strategy is that it helps businesses to meet customer demand – enabling your business to forecast future demand and provide appropriate staffing to support that demand.
On the flipside, adopting a demand-led supply chain strategy can be time-consuming and getting the figures right is complicated. Even if the figures are accurate, they can be interpreted in different ways by different people, leading to potential bias or uncertainty.
2. Agile supply chain strategy
An agile supply chain strategy is about reacting to consumer demand quickly and changing your supply chain based on changes in the market, material availability, seasonal fluctuations, and consumer demand. An example of an agile supply chain might be where a company buys partly finished materials and then quickly personalises the product in response to current market conditions.
Agile supply chains work well if you’re making products that change quickly or have a short lifespan. They allow companies to offer a broader range of products, in some cases and deliver those products to customers much more quickly.
Snap-It is a London-based company offering spare parts to the capital’s plumbers and other tradesmen. The company has adopted an agile, technology-based supply chain that allows them to deliver a huge range of products to customers within one hour. Customers request a spare part via the Snap-It app, and the company’s software then locates a supplier from a city-wide network of independent retailers to find the specific item. A courier will be intelligently allocated to collect the product and deliver it to the customer.
“By creating a virtual supplier network, we have an inventory of hundreds of thousands of products that we can deliver to tradespeople in need in a quick and cost-effective way,” explains Harry Tyndall, the company’s Founder and Chief Revenue Officer.
The downside of agile supply chain strategies is that they don’t always work well if you need long-term resource planning, and it can be hard to track production progress. This can lead to higher levels of waste and inefficiency.
3. Collaborative supply chain strategy
In some cases, different businesses in the same supply chain can collaborate to improve the efficiency of the complete supply chain. For example, you might collaborate with a supplier to provide a better transportation service, or jointly make changes to reduce waste or purchase raw materials.
This type of collaboration isn’t always easy, but it can deliver significant savings and performance improvements. The Healthy Pet Store collaborated with key suppliers during 2020, by helping to arrange a dedicated lorry and team of drivers during a time of widespread delivery driver shortages. There was some cost involved on both sides, but it allowed the supply chain to continue without interruption and meant customer orders could be delivered on time. “What the pandemic taught me is that if we succeed, our suppliers succeed and that sometimes collaboration can be really helpful,” says Deborah Burrows, the company’s Managing Director.
The advantages of collaborative supply chain strategies are that businesses can share costs and risks. However, this will only happen if there is clear communication and an agreement on the priorities and goals of any collaboration.
How technology can improve your SME’s supply chain strategy
The adoption of supply chain management technology is increasing among SMEs. Automating key processes in the supply chain can drive efficiency and accuracy, delivering significant cost savings.
Today, supply chain management software can take over jobs like managing shipping schedules, tracking inventory, making sure deliveries are shipping on time, and tracking supplier performance and reliability. The cost of SCM software is increasingly affordable for SMEs, with cloud-based services available for between £1,000 and £3,000 per year.