Does My Home Business Need Supply Chain Management?

If You Sell a Thing to a Customer, Your Home Business Has a Supply Chain.

Home Business
Home Business Supply Chain. Getty Images

If you're running a home business, you may not think that you share the same concerns as Amazon or Apple. But both you and the largest corporations on the planet are paying attention to:

  • Costs
  • Delivery
  • Customer repeat orders

Without controlling your costs and nailing 100% on-time delivery — you're not going to get too many repeat orders from customers. 

That's where supply chain management most definitely help your home business.

If you didn't think that your home business had a supply chain — take a closer look. If you sell a physical thing to a customer, you have a supply chain.

And these are the ways that managing that supply chain can help optimize your home business:

Costs

That thing you sell to your customers has a cost. In fact, it has several direct and indirect costs. By using some supply chain fundamentals, you can identify those costs and work to drive them lower.

Cost of Goods Sold (COGS)

The first direct cost that is the basis for all other costs — and even the starting point of whether your home business if viable or not is the cost of goods sold or COGS. 

Your cost of goods sold is what it cost you to make that thing that you sell to customers. If you're buying an item for $5 and selling it for $10, $5 is your cost of goods sold. 

If you're buying three items for $1 each and then making something else out of them, your cost of goods sold is not just the $3 you spent — but also the costs associated with making that something else.

Let's say you glue the three items together, then paint them and sprinkle glitter on the finished product. Your cost of goods sold includes the glue, the paint, the glitter and the labor costs that it took to do all of that. If you do it yourself and don't pay yourself — you still have a theoretical labor cost that needs to be captured.

 

Your cost of goods sold should be at no more than half the price you sell your item for. Because the difference between your cost of goods sold and your selling price isn't your profit. Not yet. First, you have to consider your indirect costs.

Indirect Costs

Supply chain is also very concerned with indirect costs. Because indirect costs have to paid, just like your direct costs. 

Indirect costs include things like your packaging, the part of your utility bill that goes to your home business, your insurance and your shipping costs. 

Managing your supply chain means understanding your indirect costs, so that your selling price minus your cost of goods can cover those indirect costs. What's left is your gross profit. 

Inventory Costs

Your cost of goods sold multiplied by the number of items you have, that number only shows you a part of what your total inventory costs are. If your cost of goods sold is $5 and you have 100 items, that $500 represents your direct inventory costs. 

But you still have any rent you pay to store those items. Plus any insurance you pay to protect those items. Anytime you (or even someone who helps you) goes to check on that inventory (to count it or pick it or gaze longingly at it), that labor cost is related to your inventory cost.

 

Supply chain management gives you the language and the tools you need to identify what the products your home business sells are costing you.

Delivery

100 percent on-time delivery should be your goal. Every time you are late on a delivery to your customer, that becomes one more reason a customer has to find someone else to order from.  

Supply chain helps you achieve 100 percent on-time delivery by: 1. making sure you know what you have in your inventory, so you can promise your customer it'll ship; 2. making sure you know how long it takes you to ship something that you have in stock; 3. making sure you know how long it'll take you to replenish your stock when you run out. Those are all called lead times and they are the track that supply chain races on.

Customer Repeat Orders

What's better than getting a customer order?

Getting another order from that same customer! That means that you're doing something right. 

Managing your supply chain means that you're shipping your customers what they want, when they want it (and spending as little money as possible getting that done). 

Yes, your home business has a supply chain. And that managing that supply chain can help you keep that home business around for a long time.