Importance of Supply Chain for SME’s

This topic is one that I not only find interesting but have had increasing experience of over the past eight years. I have worked on a number of projects both as a consultant and more latterly in the development team at Henley Investment Management. I have worked on projects ranging from £25k to £75m and across portfolios with annual capex spend ranging from £10m to £500m.

More recently, I have been working with SMEs on their procurement strategy and the challenges that they face as a result of ineffective supply chain management. As business is growing, as does purchasing power and the drive for time and or cost efficiencies. The companies I work with regularly stress the primary needs remain quality and consistency in the purchasing of services, labour and materials.

Achieving success with your supply chain starts with a robust delivery process that considers the full lifecycle of a product or service. Through streamlining operations, vertically integrating and procuring direct with the right manufacturers / named suppliers and placing clear responsibility for delivery / success with the most appropriate owner, this should translate to a more robust supply chain, resulting in lower costs and faster turnaround times.

Photo by Ricardo Gomez Angel on Unsplash

By considering all stages of a project or programme of work, it is then possible to create a system that really optimises resources. In order to maximise cost saving, wherever possible I strive to standardise products and then source directly from a manufacturer or their named supplier. Not only does this support the development of strong relationships, but through procurement on a programmatic basis, it should reduce the per item cost compared with procurement on an ad-hoc project-by-project basis. Before entering into these arrangements, it is important to understand the suppliers experience and recognise the difference between cheap and value for money.

Where possible, interfaces between parties should be streamlined. This could be finding a manufacturer that can also economically provide other services such as design, surveys or installation. Or direct purchasing from manufacturers rather than going to intermediaries, taking out multiple layers of management, which has the potential for error and usually double operational costs and profit.

It is crucial to understand where to place responsibility and either retain enough ownership to properly manage the process or mitigate the risk of it not happening by transferring it. In residential construction, a few key direct procurement packages that I find beneficial includes windows, kitchens and sanitaryware. I would look to negotiate a direct supply agreement with the manufacturer. I believe the job of placing the order should wherever possible, remain the responsibility of the installer, so they can manage and take responsibility for payment, programme and order call offs. This then gives the SME direct control over the quality and price, but transfers responsibility of timing deliveries and payment.

Photo by Scott Blake on Unsplash

With the underlying framework for delivery and robust supply chain management processes in place, I then seek out the bottlenecks that can hinder progress. These may be caused by key stakeholder decision paralysis, inefficient communication channels or unclear brief, product, design information or product strategy. Understanding the cause and removing these hold-ups then speeds up the implementation of the new system.

The cost benefit can vary dramatically. Across a project I would estimate savings will range between 5-10%, depending on how well an SME is procuring in the first place. Savings on a specific package can be as much as 40% if you go from an intermediary direct to the manufacturer. Regarding time impact, this is far harder to quantify. I would tend to measure a good supply chain on the basis of fewer project delays. This positively impacts team moral as there tends to be less time spent dealing with errors and removes the need to frequently resequence works.

In summary, with the right supply chain management system in place, one which offers scalability and flexibility, you will be able to concentrate on running the business. You will have confidence that your supply chain is offering you value for money, that they are working towards a common goal and supporting you to deliver as they benefit as you undertake more work. It should also be of comfort that if setup correctly, your business has the capacity to expand as your order book increases. It is at this point that the true benefits of a robust supply chain management system become apparent.

If you would like to hear more about how we can help you with improving efficiency, whether you are an investor, developer or contractor, please feel free to contact me via the ‘Contact Us’ page on this website.

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