For a growing business, supply chain challenges are numerous. In the current environment, procurement costs are rising, supply chains are becoming more complex and businesses are having to manage increasingly collaborative relationships with suppliers. Although it can be difficult for many businesses to keep up, investing in your supply chain capability is well worth the cost. Here are some of the key challenges to keep in mind over the next year.
Inventory Procurement Costs
One of the key factors affecting inventory management is ordering cost. Inventory procurement costs are a significant source of pressure for businesses that are facing rising freight costs (driven in part by higher energy costs), an increasingly global supplier base, rising wage and commodity costs and an increasingly complex regulatory environment.
Supply Chain Disruptions
As supply chains become increasingly complex, the likelihood of disruption has increased significantly. The risks range from political and trade policy risks to global economic conditions and even to biosecurity events. These risks vary in severity and likelihood, so it is important to consider which disruptions are reasonably likely to impact your business in the next five years and which risks would have major consequences if they did play out. It’s also worth remembering that many risks are not capable of being effectively mitigated, so focus on those you can do something about.
Supplier Relationship Management
Choosing, and developing constructive relationships with reliable suppliers is a never ending challenge for many businesses. Despite your best efforts, some suppliers will fail to meet your expectations. There will always be a need to regularly check in with suppliers and to reinforce expectations.
Although the need for supplier relationship management cannot be entirely eliminated, investing in constructive supplier relationships now is likely to reduce the need to micromanage suppliers later on. Partnering with reliable suppliers, setting clear expectations and providing ongoing feedback are the three main ways to reduce the challenge of managing suppliers.
Ensuring Safety and Quality
Many businesses trade on a reputation for providing safe and quality products; New Zealand milk products, for example, are enormously successful in overseas markets because of New Zealand’s reputation for product safety and its commitment to traceability. New Zealand’s primary products exporters typically invest significantly in traceability and supplier relationship management for this reason.
This presents a significant difficulty for business that do not control every single aspect of the supply chain, in particular, for businesses who produce safety sensitive products (think food and pharmaceuticals) but who purchase raw and intermediate materials from third-party suppliers.
As the complexity of supply chains increases and, in particular, as the need for supplier relationship management grows, competition between businesses for supply chain talent is likely to increase.
For many growing businesses, a major supply chain challenge is scaling up from a small to medium sized business, and dealing with the range of supply chain pressures that are involved. However, even very large businesses are finding that upscaling is creating additional supply chain pressures. Chief among these is the need to support a much larger number of stock keeping units, primarily to compete with ecommerce and drop-shipping businesses.