When it comes to building a small business that can handle rising costs and other challenges, take a good look at your supply chain. It may just help you stay ahead of the curve.
In today’s fast-paced and dynamic business environment, small businesses are constantly challenged, especially in their supply chains. The secret to achieving this resilience, according to Maria Christina, CommBank’s National Manager of Manufacturing and Wholesale Trade, lies in using several strategies that can help businesses navigate uncertainties and disruptions effectively.
Understand the challenges
One of the biggest challenges small businesses face today is the changing landscape of supplier terms. “After the pandemic, we are seeing more suppliers asking for payments upfront when orders are being placed instead of when the goods are being shipped. This has lengthened the working capital cycle and tied up cash for businesses,” says Christina, noting that this means small business owners must ensure their supply chain network and process have a few important characteristics:
- Flexible, to a point. “You need enough flexibility to move during the seasonal peak cycle where consumer demands are higher and then scale back when there is reduced demand.
- Robust and reliable. “Make sure there’s no disruption to production and consumers are getting their products within their agreed time frame.”
- Sustainable and ethical. “With regulatory focus on environmental, social and governance [ESG] as well as customer preferences for sustainable products, businesses need to ensure that their end-to-end supply chain networks are sustainable and ethical.”
Find ways to avoid interruption
The goal for most businesses is to have a continuous uninterrupted supply chain to ensure production consistency and that customers receive their products within the agreed time frame. “There are several options that businesses can consider,” says Christina. You can consider reducing concentration risk by having a few alternate providers. Vertical integration – which is when a business expands operations to include activities that are either earlier or later in the production process – is something else you might want to think about: “This can reduce supply chain vulnerability, improve cost efficiency and may also ensure businesses are controlling the next step within the supply chain.”
Keep asking the right questions
Many owners want to know how they can identify vulnerabilities in their supply chain. Christina stresses the importance of looking at both internal and external vulnerabilities. “Small businesses should be asking themselves, if some unforeseen circumstances were to happen to their key suppliers, what impact would this have to their business? What can they do internally that can mitigate or minimise this risk so their business could continue to operate with minimal disruptions. Do they have a contingency plan in place?” From an external perspective, keep monitoring factors that can impact your supply chains including any geopolitical risk, economic conditions and industrial action.
Consider the role of tech solutions
CommBank recently published their Manufacturing Insights report1. “We surveyed more than 460 manufacturers and distributors from around the country and found that there were two leading, emerging technologies for small businesses related to supply chain,” says Christina. The first is a supply chain integration system. “This is a platform that combines all the data and processes used in a supply chain to provide a centralised, real-time view of the entire process,” says Christina. “Supply chain integration is capable of sending real-time data between supplier and buyer.” The second is track-and-trace technology for supply chain visibility. “This refers to the ability to identify the past and present locations of all product inventory as well as a history of product custody.”
Find your inventory sweet spot
“As we all know, higher stock levels tie up cash within the business so the leaner the inventory, the better it is for working capital. However, since the pandemic, many businesses have buffer stock or what we call just-in-case inventory,” says Christina. “It’s very tricky to get this balance right.” Some things businesses can do to find balance are:
● Understand what’s happening in the economy and how this may impact customer demand.
● Put an emphasis on strategic planning to ensure their demand forecast is accurate.
● Utilise available technologies to forecast demands, including data analytics and even AI.
Monitor your business productivity
Productivity can be a countermeasure to challenges like rising costs, inflationary pressures and weakened consumer spending. “Aside from increasing product prices, it’s important for businesses to look at ways to improve their productivity,” says Christina. According to research shared in CommBank’s Manufacturing Insights report1, the biggest barriers to productivity for small businesses are labour skill and availability, quick changes to customer orders and lack of finance resources for capital expenditure. “Top investments by small businesses to improve productivity include reskilling staff, tighter inventory-management systems and replacing plants and equipment,” says Christina.
How can CommBank help small businesses build supply chain resilience?
“We’re supporting small businesses by helping them understand the industry in which they operate. Our team launches industry publication reports, such as the Manufacturing Insights Report, that delve into key topical drivers for the industry, including productivities, supply chain, changes in customer behaviours, emerging technologies, digital skills and renewable,” says Christina. As Australia’s leading business bank, CommBank also provides funding to assist with working capital supply chain solutions as well as other funding requirements to improve productivity. And let’s not forget valuable networking events, including CommBank Small Biz Week in Melbourne this coming May.
Things you should know
1CommBank Manufacturing Insights 2024 report
