Does My Small Business Need Supply Chain Help?

How to Tell If You Should Get Supply Chain Help

Small Business Owner
Small Business Supply Chain. Getty Images

Is there one way to tell if your small business needs to get professional supply chain help? Small businesses come in many shapes and sizes. The woman, in her garage, hand-painting colorful swirls on children’s furniture is a small business. And so is the homebuilder whose company makes $35 million per year. And so it can sometimes be difficult to find a “one solution fits all” tool for small business owners.

You may be saying, "I am a small business owner, the closest thing that mere mortals will ever come to being a superhero, so I don't need your puny supply chain help."

Really? You're not getting help with your bookkeeping, website management, legal issues, custodial concerns or even third party sales? All of that makes sense to you.

Your Small Business Probably Does Need Supply Chain Help

But supply chain help?  That’s much harder for many small business owners to let go of. Most small business owners might be more qualified to wipe down a sink than to optimize supply chain, but they will hold onto the latter much longer. Why is that?

Is it that supply chain activities are so much sexier than bookkeeping? Perhaps. Or maybe it’s because small business owners are much more connected to the products that they’re selling than Amazon or Dell. Those small business products represent what the small businesses are — and how the small businesses and the owners themselves are perceived.

 

So how would a small business owner know when it’s time to reach out for professional supply chain help? Here are five questions that can help answer that larger one.

  • Do you know what you have in inventory?
  • Do you know how long it will take to get more?
  • Do you know how much your products really cost?
  • Can you tie your customers’ overall demand with what you have on-hand and what your suppliers (and their suppliers) can make?
  • You might be delivering your customers what they want, when they want it, but are you spending as little money as possible getting that done?

We'll explore each of those questions.

Many times, small business owners have invested their heart and soul in finding the right suppliers to make their products. They have emotional ties and loyalty to those suppliers — who believed in them when no one else did. But at some point, small business owners are going to tire of answering questions that someone else should be answering. It’s why you wouldn’t wear an orange shirt to Home Depot more than once.

Do You Know What You Have in Inventory?

That might seem like an easy question to answer. But how confident are you that, if a customer placed an order, that you know exactly how many of that product you have, by SKU? And can you pick it, pack it and ship it in time to get it to your customer when they want it?

There are two ways to test your inventory accuracy. You can go to where your inventory is (a warehouse, closet, or your garage) and take a sample count. Now go to where you keep your inventory records (a WMS system, spreadsheet, or that Post-It with all the scratch out marks). Is what you counted what your inventory records say?

That’s called floor-to-sheet counting.

Sheet-to-floor counting is when you do the reverse. Check a sample of your inventory records and then go count what you actually have. You should employ both methodologies when checking your inventory accuracy.

Congratulations, you’ve just cycle counted. Believe it or not, some companies cycle count every day. If your counts weren’t accurate, or you don’t feel like you have the bandwidth to keep up with your inventory accuracy, then  you may need supply chain help.

Do You Know How Long It Will Take to Get More? 

The trickiest trick question in all of the supply chain is, “What is your lead time?” Don’t be baited into answering it with a numeric value (two days, one week, five months). The answer is “Which lead time are you referring to?” 

Your company has many lead times.

It depends on whether you have a product in stock, what stage of production it’s in, what the inventory status of the raw materials and components might be, or scheduling capacity. 

Connecting all of those lead times — from customer order placement all the back through your supply chain to your suppliers and their lead times — that's what supply chain people do. 

Your small business has lots of lead times, see? Small business owners who don’t have the time to keep track of them all should seek supply chain help.

Do You Know How Much Your Products Really Cost? 

Yes, you probably know how you’re paying your suppliers for the parts you order from them. But do you know the total cost of quality? Do you know your freight and customs and warehousing costs? Do you know the gross margin impact on customer returns? 

  • Total cost of quality
  • Freight, customs, warehousing
  • Customer returns

Total cost of quality includes not just what you paid for that product, but are you sourcing that product from a supplier who is cheaper, but has a higher scrap rate? If you bought 100 pieces from a supplier and they cost $5 each, you just spend $500. But if you have to throw away 10 pieces because they are not sellable, you just spent $500 for 90 pieces, and the piece part just went up to $5.56. If you paid someone $15 per hour to sort through the 100 pieces and it took them three hours to do that, you just paid $545 for 90 pieces. So, including the total cost of quality, each piece cost you $6.06. 

Did you pay for freight and customs and for a third party logistics company to warehouse your items? Those costs count, too. Let's say that all those original 100 pieces cost you $25 to ship from your supplier. Your costs just went up to $560 for the 90 usable pieces. 

And — yes, there's more — let's say you sold those 90 pieces for $10 each. Congrats, you just grossed $900. It only cost you $560 to do that. But let's say you get 10 percent returns (which isn't unreasonable) and those nine pieces that come back are not re-sellable. You really just made $810. 

Your original calculation showed that you spent $5 and sold for $10. You might have forecast a $500 profit for those 100 pieces. But at the end of the day, your profit was $250.

Exactly. You could use supply chain help.

Can You Tie Your Customers’ Overall Demand to What You Have On-Hand and What Your Suppliers (and Their Suppliers) Can Make?

Or, said another way: You might be delivering your customers what your customers want, when they want it — but are you spending as little money as possible getting that done?

You may know what your out-of-stock products are. But do you know what your overstock items are? And how much extra those items cost you? What about your late deliveries to your customers — how much did they cost you? And those orders that you expedited to get to your customers on time — great job. How much extra did that cost you and what countermeasures have you implemented to keep that from happening again? When was the last time you initiated a sourcing program to benchmark your cost of goods? 

You already have a supply chain.  If you want an optimized supply chain, you may want to get some professional supply chain help.