24th September, 2018

Signs your supply chain needs work (and what to do about it) 

Growth is a sign that your business is succeeding, but growth without preparation can put that success at risk – and nowhere is that more evident than in your supply chain.

This is especially true for manufacturers, distributors, retailers and anybody with a large inventory of physical product.

If your business starts to struggle with your supply chain, you run the risk of missing orders, losing customers, and reversing the growth that got you there in the first place.

So how do you spot the signs of pressure, and more importantly, what do you do about it?

Signs your supply chain needs work

Sales problems

Are you missing out on orders, because you don’t have stock?

While some customers will be happy to go on back order, there are plenty of occasions when that’s not possible.

Generally, customers won’t wait around and will end up going elsewhere instead. A small change that can make a significant difference is to simply begin recording these lost sales.

If your customer wants 1000 hammers and you only have 200, you need to record the sales loss – otherwise you’ll base your inventory on that 200, and increase the likelihood of a stock-out again.

If you know what customers want – not just what you end up selling – you can tweak your ordering, and have more chance of getting the right mix of stock next time.

Did you know? With MYOB AccountRight’s inventory management module, you can set alerts to let you know when you’re running low. It then automatically fills orders for you to review and send, saving you time and lost sales.

Over supply

On the other hand, too much stock can be an issue. Some companies choose to deal with growth by increasing their inventory, which ties up cash, incurs storage costs, and can end up being a drain if it’s not sold.

Too much stock is often as bad as too little stock, and there are plenty of ways to manage your inventory so you have just enough.

READ THIS NEXT: Supply chain planning: What you need to know

Ageing stock

Some businesses run into problems when they fail to accurately forecast sales. They’re then left with old and outdated stock, which won’t sell and ends up as a loss.

This is particularly true of tech products, which don’t tend to stay current for long. This obsolescence was one of the major factors contributing to the demise of tech retailer Dick Smith.

According to a report from administrator McGrathNicol, Dick Smith’s big growth plans “went unchecked” and large inventory purchases “meant Dick Smith was carrying too much stock that was not saleable and was overvalued.”

Excessive stock movement  

If you have several warehouses or locations, shifting stock is inevitable.

But if you’re constantly moving product from one place to another, it’s a sign that your supply chain isn’t working effectively.

If you’re not accurately predicting demand in different centers, paying to move stock around the country just to make a sale can rapidly eat into your profit margin.

Getting orders wrong 

One wrong order isn’t a huge problem, but a large volume of errors can be disastrous.

Not only do you have to pay to resend the item, but you have unhappy customers to deal with. The returned product may also be unsalable and need to be written off.

And that’s the best-case scenario.

Customers will often shrug, buy the correct item from someone else, and you never see them again.

Production problems

For manufacturing companies, having the right parts on hand is essential.

If you’re experiencing production delays because parts aren’t coming through when they should, you probably need to change the way you’re managing your supply chain.

Having the right parts on hand exactly when you need them keeps the manufacturing ticking over, without incurring expensive storage fees.

Starting with software

Every business will have a range of different supply chain problems, but they can usually be solved with investing in the right business management software – along with advice from a supply chain expert.

Introducing this software can give you a significant edge over competitors, too. A recent McKinsey study found that supply chains in general have very low levels of digitisation: only 43 percent.

The research goes on to suggest that companies who do more will boost earnings each year by as much as 3.2 percent.

Most supply-chain issues can be solved by focusing on three key areas:

Reducing errors

Business management software is designed to give you accurate, up to date information about stock levels and orders, which can make a huge difference to accuracy, and reduce the frequency of errors.

But data is only one piece of the puzzle.

A good system also lets you connect the dots across your business, from forecasting demand, to timing and tracking orders, to getting the right product to the right person, every time.

Automating manual tasks

Automating tasks is the next step – the more operational processes are automated, the less likely it is that orders are missed or incorrect.

Shortening your delivery cycle

With the right business management software, you’ll get complete visibility across your business.

You’ll be able to analyse past orders and optimise the use of your warehouse space, placing high volume product in the best positions for efficient picking and packing.

More effective forecasting, ordering, picking, and packing will naturally help to reduce your delivery cycle.

As always, when it comes to business, small decisions and changes can have a huge flow-on effect.

Making the decision to work on your supply chain in the early stages of business growth makes sense. It sets you up to handle whatever comes your way, and helps you turn a business opportunity into success – and profit.