By Crystal Shin
What many manufacturing and distribution companies tend to forget is that their business is just one link in the all-important supply chain. What you do with the links in front and behind will often determine the strength of that chain.
In order to be successful you must not only identify and minimize the risks on both sides of your chain, but you must also identify the quality methods necessary to better manage the unplanned occurrences in other businesses. Although none of us have a crystal ball, things happen that affect our supply and our business, and we must be positioned to react quickly to minimize any negative effects. Businesses more and more find that they must lean on an effective supply chain to compete in networked economies. Establishing good relationships with those businesses within your supply chain leads to better opportunities and better profits.
Unplanned events happen in financial markets as well. How successful you are at buying the necessary components to manufacture your product at the best possible price on the one side, and minimizing the expense of distribution on the other side, will significantly determine your product’s profit.
What Supply Chain Management Means to Your Business
Your company should manage supply chain events to position your company so that disruptions in distribution or purchasing are minimized. The supply chain does not begin or end with your business. Each supply chain has separate businesses that supply a function for the length of the chain. If one distributor has a problem with moving your products, you must be ready to provide an alternate means.
Possible roadblocks and bottlenecks must be identified both internally and externally. This may call for a collaboration of effort across the chain. Planning is key. Look at possible risk scenarios, and then implement measures to sidestep those roadblocks.
The Importance of Analytics to Your Business
To realize the best possible profit for your finished products, you must be able to use internal and external price prediction indicators for every component of your product to your advantage. Knowing what to buy and when to buy it can be critical to your product’s bottom line, particularly those with a slim profit margin.
Price Waterhouse Coopers stresses, “…that digitization and automation of supply chains will create greater transparency if managed correctly, which will ultimately result in reduced costs and efficiency.” Good bookkeeping is imperative to good analytics and automation is important to good bookkeeping. Using an old fashion accounting journal might be effective for the needs of your accountant and the IRS, but does is inadequate for providing indicators for analytical predictions.
Historical purchase records within the business will give you an indication of where to make changes to your buying habits to produce better profits. The same is true for external indicators. External indicators must include insurance, procurements, inventory management, logistics, and maintenance functions.
The Impact of Variables on Your Business
Predicting how the variables that affect your business will react to economic indicators can give you a leg up on expenses. Everyone knows that when the price of a barrel of crude oil goes down the price of gas and heating oil will likely follow, but how many use those indicators to fill the heating oil tank for the warehouse? Waiting may only save a few cents per gallon, but with a 500-gallon tank, the savings is significant. You and your business partners must take the same approach to everything your business needs.
Using Forecast Accuracy to Minimize Variables and Maximize Your Business Bottom Line
When forecasting, it is important to consider historic variables. Modify your purchase and sales history to include exceptional events. Occurrences such as promotions, “fire sales,” or inventory liquidations would typically cause a spike in demand, while those periods when your product was out of stock would seem as if there were no demand because there were no sales. These variables in normal business flow can skew your forecast, tipping the scales toward an inaccurate reading. Purchase and sales forecasting should be an integral part of any business strategy. Consider purchasing forecasting software or outsourcing. It is that important to your bottom line.
Minimize Supply Chain Risks Whenever Possible
Two of the biggest business risks you’ll encounter are market turbulence and cyber security. Not all risks can be foreseen or eliminated, but accounting for the possibilities will change how you approach mitigating those risks.
Your business must continuously plan, evaluate and monitor known risks. Market turbulence is one of those things that most small and mid-sized businesses (SMB) cannot control; however, you must be poised to take advantage of those occurrences. Making major purchases while overall markets are down will probably result in a better price for your components.
Forty-three percent of all active business organizations reported being hacked last year. Some take the attitude that they cannot prevent a hack, but the truth is that it normally takes a person within your organization to initiate contact. Training on identifying malware and cyber intrusions can help mitigate the vulnerability.
When considering how your business fits into the supply chain, you must look left, right, up and down. Consider what you are doing and how it affects or could affect everyone else in the supply chain. Supply chain management is not just planning and predicting, but understanding how your decisions fit into the overall picture.
Using economic indicators to forecast large purchases and sales can help a small business realize a profit even in tough economic situations. The use of forecasting and analytics can be a boon to your business.
Contact Goldin Peiser & Peiser for further information on how to help ensure the financial health of your business.