How can Small and Medium Enterprises (SMEs) increase their profitability utilising supply chain principles

Why is supply chain management critical for success, and how can Small and Medium Enterprises (SMEs) increase their profitability utilising its principles?

Supply chain management impacts two primary areas of a business:

• Functional: Businesses exist to meet the needs of their customers and extract value in compensation for their efforts. To guarantee that value is given and received, businesses must achieve the functional goal of efficiency, ensuring minimal friction throughout the supply chain in delivering products to customers, from procurement and manufacturing, receiving, warehousing, logistics and fulfilment, and reverse logistics (returns). Happy customers = More business = Higher performance and profits.

• Financial: Cost-effectiveness- the ability to do more with less is a significant financial goal. Creating optimal or near-optimal processes allow for better forecasting and coordination, which reduces costly redundancies, overstocks, and stockouts. Minimal waste= More cost efficiency = Higher performance and profits

There are five core principles that SMEs can apply in the development of a supply chain strategy:

• Segment your customers: Using historical data, businesses should segment individual or similar customer groups based on their needs, purchasing habits, and average spending. This will allow the company to anticipate demand better, maintain adequate stock, and adapt its supply chain to deliver value to each segment efficiently and profitably.

• Customise logistics based on segments: Adapting the logistics requirements based on customer location, product size, and additional service requirements like installation will ensure optimal delivery and profitability for each sub-segment. Doing this analysis will help determine whether a central logistics base (hub model) is required, or it has to be decentralized.

• Develop demand forecasts: While historical data is beneficial to segmenting your current customer needs, anticipating future demand is critical to streamlining costs. Utilizing data from parallel market signals and quickly adjusting demand planning can ensure that a business is prepared to meet changing needs. Having raw materials sourcing processes, especially materials and services contracts, mapped to demand forecasts is imperative.

• Reduce costs: Strategically managing costs across the supply chain from suppliers to third party logistics will reduce the total cost of production and delivery. For example- bundling items for delivery based on proximal location can reduce the cost of fulfillment.

• Analyse performance: Measure, analyse, adapt. Keeping track of performance metrics across the entire supply chain will allow easy identification of areas that need improvement, expose areas of redundancies, and improve overall ability to reach the end-user effectively, efficiently, and economically.

The benefits of creating an effective and efficient supply chain cannot be overstated, and its impacts, positive or negative, is often the defining success point, especially in industries with thin margins. Research has shown that companies with efficient and well-managed supply chains have a significantly higher-than-average revenue growth than competitors. A smooth supply chain process ensures that your business can consistently anticipate and provide for the customers’ needs in a way that exceeds the expectations of the customer while positioning your company for growth. It also creates a formidable competitive advantage to set your business apart.

Source: https://www.thisdaylive.com/index.php/2021/08/08/supply-chain-the-underestimated-driver-of-business-profitability/