Create and manage your supply chain

First published 08 February 2019 • Updated 31 October 2019

Create your supply chain

Getting your supply chain right is fundamental to your business plan. Your business will only be as strong as the weakest link in your supply chain, and any flaw in the chain or its logistics can cause significant problems.

Here you can find out why your supply chain is such a critical part of your business, and what you can do to ensure it doesn’t let you down.

What is a supply chain?

A supply chain does two things. Firstly, it brings to your business the materials and/or services you need to produce your own products or services. Secondly, it enables you to deliver those products or services to your own customers. Some businesses sit in the middle of a supply chain, while others (such as a high street shop) will sit at or near the end of one.

Supply chains take many forms, but usually involve the following common elements.

  • The supplier provides the necessary materials to the manufacturer.
  • The manufacturer makes the product.
  • The distributor ensures that the product reaches retailers.
  • The retailer sells the product to customers.

Your business may fit into one of these categories, or it may sit outside the standard supply chain in a purely management role. For example, you might run a t-shirt business in which all parts of the supply chain happen away from your office, and you simply oversee the processes remotely. Conversely, you might take on distribution and retail roles yourself, but have the t-shirts manufactured by another company, and so forth.

Why logistics matter in a supply chain

Logistics are the activities and processes that enable the pieces of the supply chain to work together efficiently. A simple example of logistics is ensuring that multiple delivery points fall along the shortest possible route, to minimise delivery times and fuel consumption. Coordinating the various parts of your supply chain so that they work efficiently together requires a strong understanding of logistics. Getting this right can be as important as any of the individual elements.

Why is supply chain management important?

Supply chain management is the process of setting up and then maintaining all the various elements of your supply chain, so that they work together as efficiently as possible. This can be vital to the success of your busines, because your supply chain does more than just enabling you to create and deliver your products. It can also be the key to your competitive advantages. Two seemingly identical businesses may grow at very different speeds if one has a more efficient supply chain than the other. A strong supply chain also makes you less vulnerable to certain risks.

When building a supply chain, you are looking for ways to:

  • Make production as cost-effective as possible
  • Respond quickly to changes in demand for your products
  • React quickly to issues that arise along the supply chain
  • Set clear targets and goals with regard to costs, product levels and time to market

How do you create a good supply chain?

First, define your supply chain needs clearly. What are your priorities – speed, quality, reliability, flexibility or something else? What do you plan your output to be, how much do you expect to grow, and how fast? Map your requirements over the next three years at least, and then begin your search for the partner businesses you’ll need in your supply chain.

Whatever your place in the chain – e.g. a manufacturer seeking suppliers, or a retailer seeking a manufacturer – the fundamentals are the same. You want partners that can match both your current needs and your capacity for growth, while maintaining your quality standards. One of the biggest risks of a supply chain can be when you receive a huge growth opportunity, such as an order of unprecedented size, only to find your supplier chain can’t handle the sudden extra load. So make sure you have plenty of leeway both upstream (e.g. manufacturers) and downstream (e.g. distributors).

Choosing partners for your supply chain

So how will you choose your suppliers, distributors and retailers, and how will they link up? Consider all of these questions as you make your selections and decide on the overall structure.

Do the costs stack up?

Keep a close eye on your margins. Every additional cost will shrink your profits, so look what you are getting for your money. A more costly service may turn out to boost your margins in other ways (e.g. through quality) – then again, it may not. Weigh each option carefully.

Do your partners have enough capacity?

Be sure to know how much capacity your potential supplier or retailer has. Ask for evidence that they are flexible and can respond to a sudden increase in demand.

Are they reliable?

What you need in your supply chain is dependability and continuity. It’s a good idea to explore the possibility of a backup business should anything go wrong within the chain.

Is your chain too long?

Inevitably, if your supply chain is long and complicated, there is more chance that a link will fail. A long chain may also be less responsive and adaptable (e.g. a delay at one point may cause problems further on). Generally aim for as short a chain as possible.

Will the chain grow with you?

Like many small businesses you’ll be aiming to scale up and grow. Success will depend on your supply chain’s ability to carry this increasing load. If you’re not convinced that your original partners will have the same capacity for growth, hunt for potential replacements well in advance of needing them.

Maintaining and managing your supply chain

Once you’ve found the right supply chain partners, it’s good to build and strengthen these relationships. There are three ways in particular that you can do this.

  1. Share important information

Give people up and down your supply chain a sense of your future plans. Also keep them informed of how you would maintain business continuity in the event of a problem like a power cut or flooding. Ask them the same questions, and make sure you understand the way they work and how long tasks will take.

  1. Keep communicating

Successful supply chains keep talking. Weekly or monthly check-ins help to keep everyone feeling engaged and identify issues before they become problems. Also make sure that you’re always easy to contact, so if a problem does develop you can jump on it quickly.

  1. Get to know one another

Your supply chain is made up of individuals, so getting to know the teams involved can work wonders for productivity. People will feel like they’re a part of your wider team and will be more likely to go the extra mile for you. You could even host social events to encourage bonding between all teams in the chain and build mutual trust.

Look ahead and be ready for the future

Your supply chain may not stand still for long. It should be a dynamic structure that responds to change and progress. This means thinking and planning ahead.

  • What are the challenges facing your business in the near future?
  • Is your market moving, shrinking or growing?
  • Will you need to increase capacity or your speed to market?
  • Has quality become more important than quantity?

You’ll want answers to your own key questions, while ensuring that everyone in your supply chain addresses theirs too.

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About the author
Nick Green
Nick Green
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.