First Four Things Business Owners Must ALWAYS Know About Their Supply Chains

Whether you’re a budding entrepreneur or a seasoned executive, supply chains are a complex affair. It is certainly not easy spotting problems and finding solutions without lots of help, lots of consultation and lots of number crunching. 

That said, however, the complexity of this corporate task is never a valid reason to neglect knowing several key facts about your supply chain at all times. You may need to delegate portions of the work to others, but you can’t delegate the job of just having awareness of these four areas of your supply chain! 

#1. Contacts

Who ya gonna call? (Ghostbusters?) But seriously, if something does go wrong, you have to know the root cause and then who to contact. 

So, to ascertain the root cause in a supply chain, you need to understand that, since its made up of many moving parts, the root cause of an issue may not be where the issue resides.

For example, a customer might call with a problem associated with damaged product at delivery. This could be caused in transit, in warehousing, in production, and you need to know how to determine where the root cause is to work out.

So, who are you gonna call? 

To help you do this, you need to be receiving weekly information about issues/complaints in your supply chain/business by reason. This then needs to be classified by the responsible part of the organisation (including the extended supply chain).

Once this is done, you can then find one name to hold accountable for each area of issue. 

Then, armed with this information, you can be well versed in who is your contact person for each supplier, distributor, subcontractor, agent etc. These include specific functions within your supply chain such as operations, manufacturing, logistics, distribution and the list goes on.

These are also the people who will regularly contact you to advise on potential concerns before an issue has even impacted your business or your customers! 

Communication is a key relationship-building tool in your supply chain, and always having the right names on hand will make it easier to put plans in motion when challenges arise or when new goals need to be set. You can’t expect your supply chains to be resilient and flexible when you don’t even know who to call! 

#2. Sustainability 

As tiring as this sounds, sustainability is a very serious business issue. It is not just a topic any business owner can avoid because it sounds controversial or politically divisive. The reality is that if your supply chain does not consider its safety measures as well as social or environmental impact, then there will be all-too-natural consequences. 

Let’s start with something simple: Say you’re a store owner and you get grain from farms where the land is so badly overtilled because they don’t utilise sustainable ways to keep the soil fertile. The result? You get poor quality grain (or the supply just runs out completely). 

That is actually a very basic analogy that describes the way many supply chains are struggling today. If you are completely out of the loop on how sustainable your supply chain is (no matter how complex it can be), then you put your business at serious risk. 

This is one of the reasons why we are seeing more supply chains backward integrating into the farms who supply the product (paddock to plate), so that business owners and consumers can be confident of the farming techniques, food and technology that is being used to ensure sustainable production. It also provides a strategic mechanism to guarantee and shore up the availability of a specifically required product (sometimes even a premium product), but essentially is a way of assuring the availability of product for the supply chain. 

#3. Best (and Worst) Performers 

As with any model or strategy in business, you need a solid grasp of strengths and weaknesses. More specifically, you need to know what area in your supply chain performs best and what areas still need careful improvement. 

This will set the framework for how you can improve the entire supply chain as a whole. Oftentimes the reality is that optimising only one area actually ends up sub-optimising the entire structure because business owners only narrowed on a few weak points (or alternatively, they banked too much on just one part of the supply chain).

At the very least, keep a small guide that briefly describes the way your best and worst performers are working in your supply chain, and what specific challenges their relationships really create. 

#4. Cash Flow 

We will be writing more about cash flow in future blogs. However, for the moment, one thing to keep in mind is that your supply chain is directly contributing to the cash flow of your business. 

You need to have a handle on your cash flow because cash flow determines solvency. 

Take note: Your business is solvent if you can pay your bills as and when they fall due. Now, whilst business owners have been given a reprieve for the moment as the result of Covid-19, this reprieve won’t last forever. So, business owners need to get a handle on their cash flow position.

Consider working out your Cash Flow Cycle Time (CFCT) with this formula:

CFCT = DIO (cash tied up in your business) + DSO (cash coming into your business) – DPO (cash going out of your business paying suppliers)

You also need to know whether your CFCT is good or bad, and then make comparisons. First to your past performance, then that of your competitors and finally, your industry. 

You need to determine what it should be and then how you will improve. 

CFCT is the KPI that, if improved, puts more funds into your pocket!

In closing, just be reminded that this is just about awareness. Handling supply chains is certainly not about having big data servers or enterprise software hubs plugged into your brain all the time. On the other hand, there are still big, key facts that every business owner must prepare themselves with if they want to make sure these supply chains are growing, resilient and sustainable.

(Image taken from Pexels.)