We rely on other businesses, like suppliers and distributors, at several operational stages, so we can successfully provide our services, or manufacture our products, to meet the needs of our customers.
Such reliance is not a bad thing. Instead, consider that working so closely with other businesses actually results in increased profitability, fewer problems, reduced costs and a far better ability to cope with demand.
“A flexible supply chain will always allow you to reduce lead times and processes,” says Alan Braithwaite, visiting professor at Cranfield School of Management, and a consultant for Bearing Point.
“Get inside your customers’ ordering processes as far as you can, and work hard with suppliers to reduce timescales. If you can do that, you’ll be able to carry less stock and reduce the amount that doesn’t get sold. This gives you more breathing space and puts you in a better position to respond to changing demands.”
So, whether you’re trading in the UK or expanding overseas, here are five key steps to really help you ensure the compatibility of the businesses you work with – with the goal of allowing both of you to grow together.
1 Map your suppliers and distributors
Improvements start by understanding who supplies you and who you rely on to distribute. More so, drawing up a visual map that shows who’s involved, the processes, the communication channels and the costs is an ideal way to affect positive change.
That way you can identify the risks, as well as where improvements can be made and where value can be added. And, ultimately, never forget to delve deeper; who are your supplier’s suppliers, for example?
2 Identify your hotspots
Rather than trying to explore the whole network around your business, look for the hotspots where problems seem to arise. Then you can see if there are inexorable risks, or areas that are actually ripe for improvement. You should be better able to spot opportunities to streamline a process, for example, or reduce cost.
3 Know your costs
Half a penny per unit. It does not sound like much, but it can have a huge impact on your business over the course of a year.
“Most businesses see between 60 per cent and 80 per cent of their revenues going to suppliers of goods and services,” says Alan Braithwaite. “So, buying and sourcing is crucial, and there is a fine balance between driving a bargain and maintaining the close relationships you rely on.”
“Cost reduction for smaller businesses is mostly about eliminating waste – not carrying too much stock and reducing the need to ‘double-handle’ products are usually the most fruitful areas.”
Review your raw ingredients, packaging, labour, warehousing, transport and insurance. You can then see which costs are fixed and varied, and which you can make savings on.
4 Choose a supplier that fits
Whether you’re a manufacturer looking for suppliers and retailers, or a retailer looking for manufacturers, you want businesses that can meet your needs for speed, quality and flexibility – all with volume.
Just like clothes, ‘try them on’. Visit these prospective suppliers, look at their samples and client lists, meet their key people and specifically aim to agree on standards and terms & conditions.
5 Think partners, not suppliers
Successful SMEs are the ones whereby managers or directors talk to customers and suppliers, and whereby the ‘fit’ is seen as crucial.
“A good fit can help to put right (inevitable) mistakes, often makeing the relationship much stronger,” says Alan Braithwaite.
“Cold, automated buying portals can instead remove all that built-up strength. In fact, these can lose you the goodwill and cooperation of suppliers.”
So, share information with the businesses you work with and encourage them to do the same. Having a good relationship with your partner companies is fundamental to ensuring that the chain flexes, rather than breaks.
Working closely with other businesses actually results in increased profitability, fewer problems, reduced costs and a far better ability to cope with demand.
Is your supplier a security risk?
Staying cybersecure is an issue for every business. SMEs, according to the National Cyber Security Centre, have a one-in-two chance of a cybersecurity breach .
While you take action – to reduce your risk of losing sensitive information or of being defrauded – the security of your organisation is only as strong as the weakest company you work with.
Primarily, the threat to you could come from two sources. Firstly, from a supplier or partner linked into your network, or someone with access to sensitive information, who deliberately attacks your systems.
The second is the supplier with vulnerable systems, irresponsibly or not, who inadvertently becomes a cyber-attacker’s gateway into your business.
The key to cutting risk is to know – and manage – exactly who has both the physical and electronic access to your business. Armed with that information, you can put safety measures in place.
Make sure to utilise the trust that has built up within your business partnerships. For example, where a supplier is identified as a potential risk to you, do not cut ties but instead work closely and confidently with them to improve security via staff training and tighter systems.
Security considerations should be part of any supply contract, as should the process to follow in case of a security breach. It is up to you to make sure that your security priorities are respected in a business relationship.
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