You may hear the term ‘supply chain’ a lot when it comes to the procurement and delivery of products or services – but what does it actually mean and how is it relevant to your business?
What is a supply chain?
A supply chain refers to the entire process of making and selling products, and can include steps such as:
- Sourcing raw materials
- Sourcing labour and skills
- Transport and logistics
- Wholesaling and retailing
- Customer service
- Sales and delivery of the end product.
Managing the supply chain
Supply chain management is the oversight of the process of moving materials through the chain until they reach the consumer, as efficiently as possible. Supply chains apply to all kinds of products from food to vehicles, major infrastructure developments and even non-tangible products such as software programs.
Every step along the way poses risks to the supply chain, such as:
- Unavailability of materials
- Waste due to over-production and lower demand
- Shortage of labour
- Lost or delayed goods
- Negative customer feedback
Good supply chain risk management involves planning for the unexpected to mitigate disruptions to the supply chain that may occur. According to the Australian Bureau of Statistics, more than 40 per cent of Australian businesses experienced supply chain disruptions between January and June 2022, with the Retail Trade, Accommodation and Food services and Wholesale Trade sectors the most affected.
Example of a supply chain
An example of a supply chain applies to ordering a flat white from your local café.
- The chain begins with the grower, who is likely to be located outside of Australia.
- The grower plants and harvests the coffee berries (or cherries) and dries them to start the fermentation process.
- The processor then ferments the fruit further in water, before removing the fruity pulp from the coffee cherry and milling them to arrive at the green coffee bean inside.
- The green beans are then dried and packaged for transport in hessian sacks for export.
- Once they arrive in Australia, they are managed through customs clearance and delivered by a logistics company to a roastery.
- At the roasters, the beans are roasted to the desired flavour profile and packaged in branded packaging.
- The café then purchases the roasted beans either direct from the roaster or through an intermediary like a wholesaler.
- At the café, the roasted beans are ground by the Barista, who uses an espresso machine to make your flat white.
Why is your supply chain important?
Understanding supply chains is important to many small businesses because:
- the products that you sell or use are reliant on a supply chain, or
- you may play a role in the supply chain yourself.
When a supply chain becomes unstable, for example a shipment of steel is delayed stopping a builder from installing a beam in a new home construction, or hospitality workers are sick reducing the number of customers who can be served, this can disrupt your work and cash flow.
How can you reduce the risk of supply chain disruption?
While some things, such as a global pandemic, are almost impossible to predict and avoid, there are certain things small business owners can do to help avoid or minimise the impact of supply chain disruption.
Understand your stock (or service) level demand and plan accordingly
For example, a restaurant should be able to predict busy periods such as the festive season based on previous years of trade, and plan to have enough ingredients and staff to meet demand. A marketing consultant should be able to predict based on their current contract length, when they will have a lull in work and accordingly, when they should start working on new leads.
Manage the risks you can control
If your business is reliant on a certain piece of equipment or software for production, do your best to make sure it continues to operate seamlessly by booking regular servicing or ensuring you are protected from the risk of cyber crime.
It’s a good idea to have a business continuity plan in place to manage a range of risks in your business, not just those related to your supply chain.
Diversify your supply base
If you rely on a single supplier for your materials, you are at risk if their business is disrupted. Look at alternatives for sourcing your products and build a database of contacts before disaster strikes.
While it can be difficult to entirely plan for supply chain disruptions, having contingencies and mitigation steps in place can help reduce the impact of these disruptions on your bottom line.