How the Supply Chain Affects Business Success

Photo by Levi Saunders on Unsplash

Whether you’re the CEO of a rapidly expanding organization or the owner of a new startup, the fortunes of your business are subject to one undeniable fact: The success of your company is inextricably linked to the performance of your supply chain. If you want to achieve business success, you will need to ensure that your supply chain is successful, too.

According to a 2014 survey from Deloitte, 79% of companies with supply chains that perform at higher than average rates will achieve revenue growth that’s also above average within their industries.

On the other hand, a mere 8% of businesses with lower than average supply chains report above-average rates of growth. This is a figure that clearly highlights how absolutely crucial the interrelations are between an organization and its supply chain.

How the Supply Chain Affects Global Businesses

According to Logistics Bureau, “Companies with global supply chains may stand on a cost base of which 90% is attributed to supply chain expenditure.”

It’s easy to see how a business’s financial health might depend on the health of its supply chain. Similarly, it’s probable that supply chain costs can often be a large factor in the demise of many companies.

So, how can the supply chain make or break an organization?

An Effective Supply Chain Strategy

A survey by Tompkins Consortium in 2014 delivered shocking results. More than half of the business owners and leaders who participated in the survey considered supply chain to be a stand-alone business operating function. They did not see the need for a close relationship between the supply chain and other general business strategies.

It demonstrated that many companies have still not grasped the fact that supply chain is the backbone, the life blood, and the heart and soul of a commercial enterprise.

If your company has not placed that much focus onto supply chain strategy, there’s no better time than the present to get started. This is true even if it means investing in some external assistance or improving your understanding with a degree in supply chain management. For example, such a degree is available from places like Kettering University: https://online.kettering.edu/programs/masters/masters-supply-chain-management-online.

The Importance of a Well-Designed Strategy

A well-designed supply chain strategy is key for achieving your commercial goals and ultimately reaching business success. Some examples of a well-designed strategy include:

Developing a process of excellence in supply chain collaboration
Removing unnecessary links from the supply chain
Building strategic relationships with vendors to drive prices down
Implementation of cross-docking to enable inventory reductions
Strategic technology use to gain greater efficiency

Supply Chain Service Performance

One undeniable, sure sign of business success is profitable revenue growth. Moreover, customer service and satisfaction are among the crucial factors driving profitable growth.

What’s more, customer satisfaction depends largely on the supply chain. If you want to achieve business success, then your company must keep this in mind. In short, the customer must be a priority focus when considering supply chain strategy, performance management, and network design.

A study conducted by Gartner in 2014 revealed that 89% of companies expected to be competing on the basis of customer experience alone. For any business not yet focusing on supply chain excellence in terms of business success, this should come as sobering news.

The overall performance of your supply chain will ultimately have an effect on the way customers perceive your business and the service that they receive from it.

Common Performance Issues

What common supply chain performance issues tend to lead to customer satisfaction and interfere with business success?

Slow time to market for new products or service
Delayed responses to customer service requests
Inventory shortages
Weak order fill and delivery performance
Long delivery lead times
Poor quality of product or service

If any of these problems appear familiar to you, then not all hope is lost. You need to identify the root causes as quickly as possible and begin to address them. You will then be on your way to a more successful supply chain and providing an excellent, enhanced customer experience.

What’s more, operational performance and business success will be under greater control when you focus on identifying and solving supply chain issues.

Supplier Performance

As the name suggests, the supply chain is only as strong as its weakest link. The bad news is that often, some of the links in your chain are not going to be under the direct control of your organization. To an extent, your suppliers have more control over your business’s success or lack of success.

This is why it is absolutely essential that you work in collaboration with primary suppliers to minimize any uncertainty.

Uncertainty in the supply chain can be expensive. Also, it has a negative effect on customer service. This is why it’s one of the most disruptive factors in terms of overall business performance.

Collaboration between your company and your key suppliers is essential in order to ensure protection against potential inventory shortages and supply bottlenecks. These will threaten to hinder business success.

But remember that from a customer perspective, there’s little to no distinction between the performance of your suppliers and that of your company. The best companies have recognized and understood this fact for a while now. What’s more, they have responded accordingly, which has led to positive results.

In other words, they have leveraged supplier management in order to ensure that they maintain exemplary service standards while achieving reductions in supply chain costs.

Inventory Management

The businesses that don’t rely on inventory are few and far between. Even if you’re primarily offering a service rather than a product, chances are there are still items you will need to move through a supply chain.

Whether it’s equipment, consumable items, spare parts, or something else, if you have something that needs to be stored and transported, it will require treating and managing as inventory.

Moreover, if your company is providing products to customers, the need to efficiently manage inventory is absolutely critical. Your business depends on it for success almost as much as it depends on your customers.

Once inventory passes from the hands of suppliers into yours, effective management will make a huge difference to the success of your business as a whole.

Inventory management is so important because it can have a powerful effect on working capital and cash flow. In order to reduce working capital within your business, it’s important that you take the time to thoroughly investigate inventory management.

Some Important Questions

Here are some important questions to ask yourself:

Can you find a way to reduce inventory holding costs?
Can forecast accuracy be improved in order to reduce the need for holding extra stock?
Are you getting the shortest possible lead times from your suppliers?
Can customer delivery lead times be sped up?
Are you taking sufficient steps to prevent inventory obsolescence costs?
Has inventory shrinkage caused your business to lose money?

The answers you give to these and similar questions will provide you with a path to follow when it comes to improving your working capital situation and ultimately achieving business success. Moreover, improvements in these areas will also lead to increased customer service levels and additional profitability.

Corporate Responsibility and Ethical Procurement

Recently we have seen an increase in the number of commercial brands that have suffered from destroyed reputations and even loss of revenue due to unethical practices among their suppliers. Corporate responsibility issues can have a negative effect on any business. This is true even if unethical supplier practices are occurring further down the supply chain.

If your organization is a startup or other young enterprise trying to make it, any public knowledge of any association with unethical suppliers could easily lead to quick financial failure and business demise. When it does, it will be because of customer reactions to what they perceive to be your wrongdoing.

Supplier Management

As far as supplier management is concerned, out of sight should never be out of mind. This is especially true if your supply chain operates internationally. Any performance management program you implement should have a heavy focus on the ethical responsibilities and integrity of your suppliers’ sources.

This is an area where particular knowledge and skills are required in order to ensure improvement. It can be worthwhile to invest in help from external experts to avoid supplier ethics scandals such as these:

In 2016, Marks & Spencer, ASOS, and Uniqlo in Europe were all implicated in unsafe working practices and child labor scandals in their supply chains
Then in 2015, Nestlé found that fish products they used in cat food brands were sourced from suppliers linked to slave labor
In 2014, fast food chain McDonald’s saw a 7% drop in sales in Asia after a Chinese supplier was found to be selling expired meat
And in 2016, Australian brands Woolworths and Coles were both identified as purchasers of fruit from farmers engaged in employing illegal overseas workers

Center Your Organization Around Its Supply Chain

Whatever its size or age, if you want to ensure that your business is thriving in the future, your supply chain should be at the very center of management attention.