As the term suggests, a supply chain is the interlinked network of suppliers, resources, technologies and organisations involved in the provision of a service or a product to a company’s customers. 

Frequently there are a number of levels to a supply-chain (your suppliers, your suppliers’ suppliers and so forth), and it is important for businesses to understand the relationships at each level in order to identify where the weaknesses in the chain are and in turn where there are opportunities to improve the strength and efficiency of the supply chain.

The most efficient supply chains enable companies to deliver high quality products or services as quickly and cost-effectively as possible. Maintaining good relationships with suppliers at all levels of the supply chain, having the ability to forecast and prepare while keeping an eye on costs, are all essential to ensuring the smooth operation of your supply chain. 

So what are some of the things you should consider to ensure an efficient supply chain?

1. Categorise your suppliers

The size and complexity of your supply chain will be dependent on the nature of your business. It is also likely that you rely on some suppliers more than others, perhaps because the materials or services they supply are difficult to source or are critical to the quality of your end product or service. For example, if you run a bakery, you would be much more reliant on your fresh ingredient suppliers than you would be on your stationery supplier.

It is only natural that you would spend more time and effort managing your relationship with your key suppliers. Analysing your supply chain and categorising suppliers into A’s (critical / single source suppliers), B’s (other key suppliers) and C’s (multi-source / commodity suppliers) will help you to ensure your supply chain management efforts are directed to the areas that represent the biggest risk to your business.  

2. Establish Service Level Agreements with your suppliers

Ensure you have a contractually-agreed Service Level Agreement (“SLA”) in place with your category A and B suppliers. The SLA should define specific conditions of business such as lead-times, flexibility, quality levels, notice periods for price increases, special packing requirements etc. It may even require your suppliers to ensure they have similar agreements in place with their key suppliers – remember, a chain is only as strong as its weakest link. The SLA is designed to help both you and your supplier, making sure that both parties have a clear understanding of the obligations on each other and giving you a set of criteria against which you can measure their performance.

3. Monitor Performance of your supply chain partners

Effective supply chain management relies on being able to measure your suppliers’ performance so have a system in place to monitor and report on the service provided by your suppliers. For example, today’s cloud accounting software providers go beyond simply offering options to manage your books online; Xero, for example, has the added functionality to allow you to seamlessly track data throughout the entire supply chain process. Using an integrated supplier management system, as opposed to manually updating spreadsheets, frees up staff time to concentrate on the day-to-day running of the business. 

4. Work in partnership with your supply chain

The most effective supply chains are built on the principle of partnership. Of course you want the best quality for the lowest price along with the greatest level of flexibility. But rather than making unreasonable demands, work with your key suppliers to identify ways in which they can improves their service to you and actively encourage them to bring cost-saving ideas. Bringing on a new supplier costs time and effort and irrespective of how much checking you do (see #5) always involves an element of risk. It’s a much better idea to foster a long-term mutually beneficial relationship with your key suppliers, sharing your supplier performance data with them and helping them to improve – after all they need to make money to survive too.

5. Due Diligence

Finally, do your homework before selecting your supply chain partners. Identify the key areas that are important to you and use this to investigate how your prospective suppliers measure up. There are many examples where companies have gone for the “cheapest” option, only to find that the total cost is much higher than they initially thought.

Your supply chain is as important to your business as your in-house operations, so make sure you give it the focus and management attention it deserves.

Got a question?

If you feel you’d benefit from some assistance reviewing your supply chain management strategy and cloud accounting options, please get in touch with me for an initial chat.