The job posting landed in my inbox as a result of an imperfect algorithm. A manufacturing company that had received its first round of funding was seeking an administrative assistant. The role would support the executive team and manage human resources, coordinate facility maintenance and handle procurement and contract negotiations.
This was yet another instance where procurement was considered an administrative add-on and not a critical position. The company was missing an important opportunity to bring professionalism to a critical functional area.
Vigorous supply chain management leads to greater operational success, reduced costs and higher customer satisfaction. This is especially true of small businesses and start-ups, where the foundations of supplier performance can have a significant impact on near- and long-term business success.
Some small businesses need to overcome a size-related inferiority complex and allow themselves to actively engage with suppliers. One doesn’t have to be a Fortune 500 company to establish strong and foundational supply chain management practices that will not only help with current business conditions but contribute to future growth.
The following four pillars of small business supply chain management will put your company on strong footing.
1. Understand your place in the market and use it to develop procurement strategies
It is important to understand how your company competes in the marketplace in order to create a short-term and long-term procurement strategy. Often companies have a variety of products and market opportunities. Be prepared to blend these strategies and create one that works for your company.
If your company is positioned as a low-cost provider, select a strategy of operational excellence where the lowest cost is an important supplier criteria. Consider offshore suppliers and those suppliers focused on cost management. Cost reduction is a constant process.
Some small businesses need to overcome a size-related inferiority complex and allow themselves to actively engage with suppliers.
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If your company is focused on building strong customer relationships, select a strategy of customer intimacy where service, not cost, is the overriding criteria. Select suppliers who understand your service requirements, but note that pricing might be higher and that might be fine in your market segment. Seek suppliers who are flexible and service oriented to meet unique customer demands.
If your company is rushing a new product to market, consider a time to market strategy, where suppliers are focused on rapid prototyping and fast deliveries. Cost is often secondary. Pricing is typically higher but can be reduced as the design stabilizes and purchase quantities increase, driving down cost.
2. Identify strong suppliers and nurture those relationships
The procurement organization should be in charge of supplier selection. Encourage participation by internal subject matter experts but take the final responsibility. Strength of critical suppliers is the foundation of an effective supply chain management strategy. Identify credible sources of supply that can help the company meet current operational obligations and scale as the company grows. Work with suppliers with shared values.
Some small businesses feel they aren’t important enough to establish strong supplier relationships. That thinking is misguided. Most sales organizations segment their customers and actively seek to find a good mix of businesses by size, market and sales potential. Any business can establish strong and vibrant supplier relationships regardless of size. Create clear pathways for supplier communication and opportunities to work together. Note, many of your suppliers may be small businesses themselves. Grow together.
Resist search engine sourcing. While a web search may identify successful suppliers, it may also provide a confusing landscape. The search is often way too broad, identifying suppliers who are more focused on consumers than businesses. Working with industry specific directories, trade associations and professional publications will expose you to business-oriented suppliers who have the ability to meet your service, technical, quality and pricing requirements. Use the web to leverage your search but don’t fully depend on it.
3. Develop quantitative and qualitative metrics to manage your suppliers
It is never too early to track supplier performance. Don’t wait for sophisticated ERP software to do the job for you. Identify key performance criteria like on-time delivery and quality, and track the performance of key suppliers. Establish a handful of critical key performance indicators.
One critical KPI is on-time delivery. Identify a subset of suppliers and track their delivery performance on a part by part basis, comparing their committed delivery date to the actual delivery date. Use a spreadsheet to analyze trends. Grow from there in sophistication and breadth.
Many of your suppliers may be small businesses themselves. Grow together.
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Show suppliers you are focused on supplier performance by reviewing the data with them. It will strengthen the business relationship, provide leverage in negotiation and help your suppliers improve their business operations. Regular meetings around performance can lead to discussions that might improve performance and reduce costs. Never skip on communication.
4. Manage risk in the extended supply chain
All companies experience risk, but small business may be more vulnerable due to a perceived lack of leverage and potential financial impact. Create a formal risk strategy for critical items and potential workarounds for supply disruptions. Ensure continuity of supply by identifying critical path suppliers in the extended supply chain. Ask how your suppliers are handling risk in their supply chains. Incorporate those plans into your own.
- Watch those credit lines. For many small businesses, MasterCard and Visa are the two primary members of the accounts payable department. While accessing personal and business credit lines may be fine for office supplies and the local hardware store, your bank and financers want to see more substantial financial and contractual relationships with key suppliers. Be careful of inadequate credit lines when the business grows, and be sure to pay your bills. “Credit Hold” is a supply chain risk. “Cash on Delivery” is worse.
- Reduce reliance on samples. Free is alluring, but distinguish between samples and gifts. Often suppliers will comp some low value parts that do not meet an order minimum. This is a good sales opportunity and allows for building of goodwill and customer relations. Some suppliers may sidestep purchasing and go right to the user, providing samples for use in prototypes in the hope of getting follow-on orders or listed on the bill-of materials. Be careful. They may be discontinued parts that are impossible to find or new parts that may cause havoc with your cost modeling or delivery schedules.
- Protect confidentiality and IP. Be paranoid around confidentiality and the protection of intellectual property. Require all key suppliers to sign a non-disclosure agreement. If there are critical sub suppliers, have them sign one as well. Confidentially clauses also need to be part of your prints and specification.
Small business is where the action is. Don’t underestimate your power in the marketplace. Tell your story and claim your space in a crowded market. Keep supplier lines of communication open at all times and embrace the opportunity for your supply chain to be a major contributor to the success of your small business. Be the best customer you can be.
This story was first published in our weekly newsletter, Supply Chain Dive: Procurement. Sign up here.