The five most common Supply Chain mistakes made by small and medium-sized businesses
Only recently have small and medium-sized enterprises (SMEs) started to comprehend the value of developing and executing strategies of excellence in Supply Chain. While big corporations have already been investing for years in ways to improve their Procurement and Purchasing Management, smaller companies could not visualize ways of applying good practices. One of the main challenges is the lack of a dedicated team to Procurement and Purchasing activities.
However, the benefits of good Supply Chain Management are not privileges unique to big organizations. The costs of goods and services represent a big portion of a company’s spend, varying between 50 and 80% of total spend (Leenders – Journal of Supply Chain Management). Furthermore, it’s worth noting that smaller companies face tougher competition, and in order to succeed, they need to offer a superior quality of products while minimizing costs through Supply Chain Management. Check out what are the most common mistakes made by SMEs and how to avoid them:
Lack of spend understanding: Only 12% of SMEs centralize their purchasing activities in one single department, according to the Supply Chain Forum. With various departments buying in an unstructured manner, it becomes difficult to understand how long and how much money is being spent in each category. This common mistake can harm negotiations and result in a waste of expenses.
What can be done? Collect and perform a profound analysis of your spend history. Identify the categories that represent the highest expenses, and define your gradual Sourcing strategy in order to gain fast and lasting results. A consulting firm could be helpful at this stage.
Inefficient processes: Without structured processes and Supply Chain Management tools, meaningless activities could pass by unnoticed, consuming the precious time of the team. Examples of repetitive and extremely bureaucratic activities are the manual organization of documents like financial invoices, requisitions and quotations.
What to do? It is not a coincidence that 85% of companies intend to increase their supply chain visibility, according to the Aberdeen Group. By closely assessing the Supply Chain processes, it is possible to identify which processes do not add value and could be therefore easily automated or eliminated.
Lack of attention to potential risks: The inability to map and mitigate supply chain risks could harm company profits, and even its survival. There is a wide variety of risk factors, such as environmental catastrophes or problems with suppliers that should not be ignored.
What to do? Building a contingency plan is important to any company. A company that focuses on Supply Chain risk management guarantees that risk factors are known, measured and avoided. A crisis committee with a clear action plan can avoid supply chain disruption when events of risk are triggered, such as a flood in a city which makes it impossible for important materials to arrive in time.
Limited understanding of supplier base: Many small companies do not take into consideration how many partners are necessary to run their business. It is crucial to increase awareness about capacities and risks associated with each supplier. A missed delivery, for example, could interrupt a production flow, and overall, harm their credibility with their clients.
What to do? As you select and register new suppliers, companies of any size should adopt certain supplier qualification processes, such as checking financial stability, reputation in the market, etc. Currently, there are many supplier management solutions in the market that allow companies to screen business partners and structure the relationship with them.
Ignoring technological innovations: Besides the lack of professionals dedicated to Supply Chain in most of SMEs, many do not have an exclusive internal TI area either. It is common to feel insecure to adopt innovating technology without a specialized team to support this big change.
What to do? The recent proliferation of cloud technology has been making the path towards adopting Supply Chain solutions easier and cheaper. According to IDG, 53% of companies say that the Cloud is key for their innovation strategies. As they use SaaS solutions, companies of any size can benefit from ready-made, always updated tools.