As an entrepreneur, managing the bottom line means understanding where costs come from and how to keep them under control. One of the costs that businesses face immediately come from within the supply chain. A supply chain strategy, which dictates the process for producing products and distributing them to customers, involves many parts in order to work. A startup, particularly one manufacturing hardware and components, needs to understand how the different parts of a supply chain work, what risks may be present, and how those risks might disrupt the ability to efficiently meet customer demand.
A business owner can manage risks throughout thesupply chain and reduce costs with proper planning and diligence. This process necessitates an understanding of the elements of the supply chain, a look at the costs inherent to the supply chain, and how to better manage them.
Elements of Your Supply Chain Management
Understanding the elements of the supply chain for producing and distributing products to customers is crucial. The supply chain, according to the Council of Supply Chain Management Professionals, is defined as the planning and management of those activities that involve sourcing, procurement, conversion and logistics. There are four essential elements of supply chain management: demand management, communication, integration and collaboration.
With demand management, the focus is on meeting the needs of customers. Through effective communication, supply chain partners collaborate and keep each other informed in order to better facilitate the process of meeting the expectations of end user customers in the most effective way. With improved communications, businesses can integrate their processes with suppliers and other supply chain partners, leading to reductions in inventory costs and the ability to pass savings to customers in order to outdo competitors in terms of pricing. Contract equipment companies that manufacture turnkey equipment are a critical component of this and have developed streamlined processes to save both time and money. Finally, collaborative methods (such as sharing product knowledge) help organizations to make continued improvements in their supply chain and to open up new opportunities.
Managing the Risks in Your Supply Chain
Working with partners to fulfil the needs of customers in the supply chain involves costs and risks. Managing the inherent risks in a supply chain involves working effectively with partners. Supply chain risks that can shut down an entire factory might include natural disasters such as floods, earthquakes, tsunamis, or wildfires. The 2012 earthquake and tsunami in Japan severely impacted global electronics production as well as massive business disruptions for automotive manufacturers. Alternatively, geopolitical risks may surface such as labor strikes, regional conflicts, or even government seizures.
Specific ways to manage the risks across your supply chain, particularly those involving partnerswho are distant and subject to their own unique risk exposures requires understanding that risks in one aspect of the chain can affect the entire chain. Taking a holistic view of the supply chain can help mitigate some of the risks that may become present. Having contingency plans for individual components and understanding how those contingencies may impact other segments of the chain helps ensure success. Learning to manage your supply chain risk inventory is another important concept.This concept refers to inventory that can be accessed in the event of disruptions in the chain, that will allow a business to continue to meet the demands of customer for a pre-determined amount of time.