A challenge that many manufacturing businesses encounter is learning how to manage their supply chain processes as the business grows. As with most processes, what worked when the business was new and small with just a handful of customers doesn’t work as well as the company grows. Inventory, storage, and freight costs, for example, can have a drastic impact on margins if not managed properly.
We spoke with Emily LeVasseur of Waypost Advisors LLC, a supply chain, operations and procurement consulting company for advice and best practices. She recommended the following:
- Start by developing a 12-month sales and operational planning process engaging sales, operations, marketing, and production. With sales forecasts in mind, work backwards to plan production quantities, staffing levels, and necessary materials/supplies. This plan should also factor in transportation needs and potential challenges, such as labor or truck availability.
- Develop a centralized purchasing/sourcing department that coordinates purchases of all materials and supplies based on the plan above. Coordinated purchasing efforts consolidate transportation costs, reduce excess inventory, and allow a business to take advantage of volume discounts. The right ERP system (Enterprise Resource Planning) can help with automating this process.
The same concept applies to transportation. Consolidating efforts with a centralized department operating from the master plan saves time and money.
- Review vendors. If a business has been single-sourcing (loyally purchasing from one vendor for years), it may be time to consider using a Request for Proposal (RFP) process. This process involves sending out bids to multiple potential suppliers, asking the same questions of each, to collect, evaluate and compare their responses. A good RFP should answer questions such as product quality, customer service, price, discounts, and warranties. RFPs almost always result in decreased costs. Plus, the process builds relationships with a larger pool of alternative vendors to source for future needs.
- Inflation can be difficult to offset. Lock-in today’s prices for tomorrow if it is anticipated that prices will continue to increase.
- Keep an eye on supply chains as well as market demand. If/when current supply chain issues improve, it may be necessary to review order quantities so as not to stock an unnecessary abundance of inventory.
Understanding a few basic concepts about managing the supply chain for a growing business is critical to future success and profitability.