Effective supply chain management (SCM) is about streamlining the flow of goods and services across your whole supply chain, helping you to reduce costs and improve efficiency.
In this article, we’ll explore some of the key benefits of SCM, along with some insight from industry experts on how to realise these benefits.
Important benefits of supply chain management
Investing either time, money or both to make your supply chain more efficient will pay dividends.
We spoke to Rajdeep Gahir, CEO of Wing It Cosmetics, a bespoke cosmetics manufacturer with suppliers in the UK, Asia and Europe, and Chris Eccles of global recruitment technology company Employment4Students to compile the eight most important benefits of effective supply chain management to help you identify what it can unlock in your business:
- Better collaboration with suppliers
- Better quality control
- Shipping optimisation
- Reduced inventory and overhead costs
- Improved risk mitigation
- Stronger cash flow
- A more agile business
- Better visibility and data analytics
1. Better collaboration with suppliers
Suppliers that understand the business’s cost constraints and objectives can be particularly important for businesses with tight margins. Wing It Cosmetics’ Gahir says that manufacturers selling to retail outlets that expect a 40-50% markup on the factory gate price can face a profits squeeze if raw material prices are too high. She recommends when negotiating with suppliers, retail-facing businesses should aim for a "golden ratio" of no more than 25% for raw material prices as a percentage of retail sales.
But cost is not the only consideration. Flexibility matters too. In volatile market conditions, Eccles of Employment4Students found that long-standing suppliers were often more willing to accommodate temporary cash flow difficulties. While it’s tempting to shop around for cheaper alternatives, Eccles warns against it. “Be cautious about switching purely on cost and remember that long-term relationships are valuable,” he says.
To help give you flexibility with your supplier payments, the American Express® Business Gold Card gives you up to 54 days to clear your balance¹. What’s more, for every eligible £1 spent on business purchases, you’ll receive 1 Membership Rewards® point which can be used with hundreds of retailers on things like travel, retail and dining. Or, you can redeem points as a statement credit to reinvest in your business².
2. Better quality control
When you and your suppliers are working to the same standards, quality control problems can be detected earlier. Gahir gives an example: “One of my packaging suppliers contacted me to say that a batch of packaging that had just arrived wasn’t up to the required standard and she planned to send it back, which would add three days to the delivery schedule.” However, for Gahir, this delay was a better outcome than having to deal with a defective batch of packaging herself. Emphasising the benefits of trust in supplier relationships, Gahir says: “That conversation was only able to happen because we're on the same page.”
3. Shipping optimisation
Logistics costs have risen significantly, impacting small businesses across the UK. Reducing the number of separate distribution channels and making use of logistics specialists could reduce your distribution costs relative to your competitors, helping you to maintain stronger cash flow and profits. “Having too many suppliers with independent shipping and delivery streams has been the biggest source of inefficiency,” says Gahir. “We’ve responded to this by looking at storage and shipping aggregators.”
4. Reduced inventory and overhead costs
An efficient supply chain can reduce the need to maintain inventory, therefore cutting overhead costs associated with storage and security. However, a very lean inventory increases pressure on distribution networks and reduces resilience to supply chain shocks. So it’s important to identify your optimal inventory level.
5. Improved risk mitigation
In general, the further along a supply chain issue is detected, the more expensive it is to fix. That’s why supply chain management, which offers visibility of the supply chain from end to end, is so important.
And it isn't only financial risk that can be mitigated: greater visibility across all your suppliers can reduce the reputational risk of unwittingly engaging either a company that falls foul of your ESG standards, or one that operates in a country subject to international sanctions [1].
6. Stronger cash flow
Running an efficient supply chain that is based on good supplier relationships, maintains strict quality and stock control, and keeps a watchful eye on costs and prices can greatly benefit a business’s liquidity by improving cash flow.
7. A more agile business
“A good supply chain enables us to adapt to opportunities,” says Eccles. For example, Employment4Students identified a process inefficiency in a client’s business. Eccles explains: “We realised we had a couple of suppliers whose software could help and managed to get a process in place really quickly, which they adopted and found really helpful. So, if you’ve got good suppliers, they can help you unlock new opportunities.”
As always, however, it pays to be prepared, as supplier capacity can impede business opportunities. Gahir says that it’s worth investing more up-front to ensure that the suppliers you have in place are able to scale up as your business grows.
8. Better visibility and data analytics
Business managers can keep in constant touch with suppliers using mobile phone apps, conferencing platforms and shared dashboards. Software tools can also help to manage stock levels efficiently, track distribution channels and monitor business performance. Having real-time data metrics at your fingertips will enable you to put in place contingency plans to enable your business to ride out storms and take advantage of opportunities as they arise.
The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
Membership Rewards points are earned on every eligible full £1 spent and charged, per transaction. Terms and conditions apply.
Sources:
[1] Diligent, How Supply Chain Visibility Can Help to Minimize Your Supply Chain Risk, 2022
