Supply Chain and Business Logistics. Value Added Benefits Of a Purchasing Organization

Small-mid sized businesses have their own business logistics issues. Discover how MT Purchasing can help overcome these issues through our supply chain management strategies.

What is Supply Chain Management and Business Logistics?

Logistics is a business discipline that covers every aspect of the supply chain from source to end user and beyond. It includes sourcing raw materials or components. In the case of retail businesses, it includes sourcing consumer products.

It includes the processing of materials and manufacturing too. It includes distribution of all kinds including shipping, road and rail transport and in the digital era. It also includes the fulfillment of e-commerce deliveries to the homes of consumers.

Once the consumer has received the product, logistics can also include the return of goods. These can be customer complaints or support for the recycling of products at the end of their life.

Supply chain management is about the planning and management of these processes to extract the most value. The supply chain adds costs at all stages of the process. Effective supply chain management seeks to gain a competitive advantage by reducing those costs.

How Can MT Purchasing Help?

1. Improve Sourcing

Sourcing is a major opportunity for achieving economies by better supply chain management. For small businesses, group purchasing offers some great savings.

A perennial challenge for small businesses in a competitive environment is to take on big business. Economies of scale are the most important source of a competitive advantage enjoyed by big business.

Small businesses who cannot make large purchases from their suppliers can’t negotiate the best deals. Their bigger competitors have the advantage of scale.

Group purchasing allows smaller businesses to pool their purchasing power. This is a way to raise bigger orders with suppliers and all the members of the group can share the benefits. These savings go right to the bottom line.

2. Supplier Management

Effective supply chain management includes performance management. It’s performance management of all aspects of the supply chain. Supplier performance management is one of these areas. Improvements in performance can have many beneficial results.

There are several performance measures. Delivery accuracy and reliability, invoice matching, and lead time are all well worth monitoring. Poor performance in these areas all cost you money and should form part of your decision making about supplier selection.

Letting suppliers know that you are monitoring these indicators will help. Giving them feedback can improve their performance. Build incentives and penalties for good performance into the contract. That way you share the benefits of high performance with your supply chain.

3. Reduce Your Transport Costs

Transport is a significant element of any supply chain cost. Understanding the structure of these costs can open up opportunities for cost savings. Businesses with their own transport may find that they deliver with full loads. If they return empty, this doubles the cost of delivery.

Find a backhauling opportunity for a regular delivery route and half delivery costs. You also find a new revenue stream.

Understanding the full cost of transport can also suggest alternative transport options. Third-party logistics, sharing transport and consolidation may be viable options.

4. Inventory Management

More effective management of inventory can reduce costs in several ways. If inventories fall, the released capital can get better returns elsewhere. Smaller inventories can also mean lower storage costs.

Lower inventories tend to go hand-in-hand with reductions in waste. That means less lost sales, less overstock and clearance costs. With increased sales from less inventory, you win both ways.

5. Increase Efficiency That Customers Love

With tighter inventory, you can leverage other efficiencies. Handling costs are lower because there are fewer unnecessary stock movements. The only operations are value adding operations.

You can pass on these efficiencies to customers in the form of reduced prices of improved service. Customers love the reliability of suppliers who are great at supply chain management. They also love suppliers whose pricing is not inflated by inefficiency, waste and poor planning.

Small business can grow in the back of customer satisfaction and internal efficiency in a sustainable way. It makes them more resilient in difficult times. It also makes them more flexible and lighter on their feet when it’s necessary to be responsive to opportunities or avoid threats.

6. Push and Pull

A supply chain that operates on a just in time basis is a cost-effective one. It does need constant attention to planning and forecasting. But it can strip out unnecessary inventory from the supply chain.

The options are a “push” system that supplies to meet anticipated demand or a “pull” system that responds to demand. You will know best which will work in your environment. The result is lower labor costs, reduced storage costs, and reduced inventory costs. All good things.

The trick, if you can pull it off, is to work with your whole supply chain to maximize this. This means suppliers and customers, all collaborating to improve efficiency. After all, it’s in the whole supply chain’s interests.

What’s the Point?

All these supply chain management benefits have a bottom line impact. Measure the benefits in better service to customers, improved efficiency, and better productivity. But there’s a more fundamental point to supply chain management for small businesses.

Supply chain management can help small business logistics by being a source of competitive advantage. Sustainability is a challenge for small businesses. This could be the best way of achieving long term sustainable profitability.

Looking to make savings in your supply chain? Ask about the savings you can make today.

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