All businesses, no matter how small, need a reliable supply chain so they can deliver their products to their customers in the shortest time possible. The delivery system needs to be accurate, prompt and cost-effective.
Standards to consider when selecting a suitable supply chain
If the existing supply chain is missing just one of the above three elements, then you should consider redesigning it. In addition, business owners need to understand that supply chains have three different classifications:
-High inventory turns and low inventory volume – equivalent to Just-In-Time inventory
-Low inventory turns and high inventory volume – applicable when you have a long lead time with suppliers
-High inventory turns and high inventory volume – if your business is in the fresh or frozen food industry, you need sufficient produce to replace any expired or spoiled goods
When creating or adjusting your supply chain, other essential elements should include:
-Location of your business, customers, and suppliers
-Local regulations and tax laws
-Logistics lead times
-Logistical costs and savings
You can also measure your supply chain’s success based on the following:
-Flow of goods
-Costs of the flow of goods
-The time needed for such goods to flow
Ultimately, you will need a delivery system that will satisfy all your customers at the lowest possible cost. To determine which supply chain is most suited to your business, consider the following factors.
The location of your typical customer
-Do you ship globally, regionally or locally?
-Do customers come to you to pick up their orders?
For example, if you have to ship your goods across the globe, it can take up to two months for buyers to receive them. Therefore, you will need to design a supply chain that can handle international freight and customs issues.
However, if your customers pick up their purchases personally, then the delivery element can be the extension of your inventory and management control.
If your business requires fast order-to-delivery lead time, you will need a high inventory but low turns. This will mean that you need to allocate more resources to your inventory, but at least this will keep your customers happy.
If your product is in high demand or is perishable, you also need to keep a high inventory and deliver it quickly before the expiration date.
Accounting for supply chains
To successfully manage your product deliveries, you will need to know:
-What exactly you have in your inventory
-Where your stocks are located
-The costs of procuring your products
-The costs of holding them until they are sold or delivered
If you have hundreds or thousands of products, you will need a warehouse management system. Alternatively, you can hire a third-party logistics provider to take care of your inventory management and sales deliveries.
However, if you are just a small business, these options may prove to be too much of an investment. Despite the lack of huge resources, you still need to know your exact inventory. Fortunately, you can keep track of this information using spreadsheets and accounting software such as QuickBooks. This accounting service provider has several resource articles that can help you decide which software is most suitable for your business.
As your business continues to grow, you will need specific software that includes a component called enterprise resource planning (ERP). This system incorporates all the internal and external data in your electronic records and departments, such as accounting and sales.
Accountants, and specifically cost accountants, use the supply management chain as a tool to improve a company’s purchasing, manufacturing and inventory processes. This is a technique that analyzes the movement of goods; for example, from the raw materials to the finished products.
Locate your suppliers
You will have a long supplier lead time if the products will only arrive after
-Two months of sea travel. Shipping them by air is much quicker, but very expensive and the costs are usually unjustifiable
-Lengthy manufacturing cycles
High inventory volume and low inventory turns are normal for businesses such as Apple, although this tech company is using its market position to reduce its high inventory costs. For example, if you are an Apple supplier, you ship the products to the company, but it won’t issue an invoice upon receipt. You only receive payment once Apple releases the products to its retail stores.
Conclusion
In the end, the supply chain you choose must satisfy all your customers’ requirements so they can receive your products whenever and wherever they want. Nevertheless, the cost to you should also be reasonable. Achieving this goal requires a smart strategy and careful planning. However, the financial side of the supply chain will entail employing the services of an accountant who specializes in cost accounting. They will probably recommend a supply management system to monitor every process in the chain.
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Written by Nishi Patel, founder of Northants Accounting.
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