Strategic management is of key importance to business operations. It’s been found that many business failures can be attributed to a deficit in the application of strategic management both in terms of direction and within every aspect of operations. This is somewhat predictable in the sense that newer companies haven’t been around long enough to develop well-practiced systems that can be relied upon yet.
According to author and business coach, Michael Gerber of E-Myth Revisited fame, many business founders are technicians (rather than managers or entrepreneurs), so they know their previous job well but subsequently manage the whole organization poorly. This leads to early difficulties that aren’t always overcome in time. One of those difficulties is taking the supply chain seriously and designing it to compete with their industry peers.
Let’s now look at the five reasons to take the supply chain seriously in your company.
1. Competitors Will Compete with You Using Their Systems
When you boil it down, a company is a series of systems in use. Whether what’s on the factory floor or in the customer service department, there are systems in place.
One tell-tale sign of a young company is when a new employee arrives for their first day of work and enquires after the Standard Operation Procedure (SOP) for their job, only to discover that there isn’t one. They get a few hours with their predecessor impatiently looking over their shoulder from time to time, but otherwise, they’re left to sink or swim. Given that some people are slower learners than others, that’s a less than ideal situation.
More established companies have an SOP for every role and systems for everything else. This reduces their reliance on a single star employee and provides some protection against them leaving suddenly too. A supply chain is just another system.
2. Companies with Better Supply Chains Grow Faster
This might be surprising initially, but when you think about it, it makes perfect sense.
When a supply chain works perfectly, the goods are where they need to be, when they need to be there. They’re able to get out to the end customer quickly, leaving them fewer reasons to complain about anything (if the delivery is delayed, they’re more likely to complain about the product, even if they would have otherwise been happy with it).
With bottlenecks in the supply chain, it holds up the whole business. Sales cannot complete when the company cannot get its hands on enough product. The sales team begin to get frustrated when they are effective in selling the products but there’s not enough available to fulfill their growing list of orders. If not handled quickly, this can cause top salespeople to find other employers where they can increase their sales and commissions faster.
3. Improved Supply Chains Can Save Money and Tie Up Less Working Capital
Companies that manage better by cutting out stages within the supply chain reduce costs and increase speed. With more inventory turns, they hold stock for shorter periods of time, making it possible to operate from a smaller warehouse footprint too.
Less equipment will be needed, like forklift trucks, in a smaller warehouse. They may need more frequent maintenance, but they’ll still run at a lower cost.
With smaller premises, items are all within easier reach and conveyor belts are shorter, making the time to pick and pack less for each package. This allows more products to get out the door every hour.
4. Companies Invest in Their People for Better Results
When a business projects out 3-5 years with their people – not just with their financial results – they tend to do better.
Smart strategic managers appreciate that the business is nothing without the people who come to work there. While it’s possible to get new recruits from outside the company, developing people’s careers through education and promoting from within based on their improved capabilities to meet the needs of the company serves the business well.
One example of this is with companies that take the step to funds a masters in supply chain management for staff who are perfectly positioned to improve their supply chain systems. It might not be the current manager – it could be their number two – but by investing the latest supply chain education available, it allows the business to support the sales team by leading from the front using internal systems to do so.
5. Continual Modeling and Discipline Lead to Market-Leading Results
In the beginning, supply chain management is haphazard – almost random – with orders being sent out to different suppliers without a clear understanding. No systems or standardization are being used to operate at a high level within the organization.
When becoming better organized, the whole supply chain is designed and mapped out visually to see how it should work. Then standardization is implemented across the model to make everything fit together perfectly. When doing so, it becomes much easier to compare different suppliers, get quotes and determine what the best option is for a new contract for different parts or materials needed on a regular basis.
To get market-leading results, it’s necessary to be disciplined with all aspects of the supply chain to remove all inefficiencies. This is what your competitors are doing on a daily (or at least a weekly basis). They refine their models, look for new ways to squeeze more out of the existing systems and get better results.
Ultimately, young companies that prefer to keep a simple system in place for managing suppliers end up regretting it later. Simple systems are fine initially, but they can quickly become inadequate to the task as the complexity of the business grows to unforeseen levels. At which point, a major failure of procedure causing a problem with stock availability is often the first sign of a larger problem. As the company’s founder/CEO, it’s necessary to recognize that potential before it happens. This way, it’s possible to implement improved systems, derive the benefits from it, and avert a potential major business problem too.