Whether you run a small business or a large, multinational organisation, effective management of supply chains is a crucial consideration for a smooth and profitable operation. This is particularly true for small enterprises, where an interruption in supply chain can be costly and result in reputational damage, which is far harder to mitigate for smaller firms.
So to help you overcome potential supply chain disruptions, here are two of the most common failures that often affect SMEs, and how you can avoid them:
- Relying on a single supplier
This is especially common for small businesses, who often build a relationship with a single supplier to provide products or additional services. However, if this supplier goes out of business, or is unable to deliver for any reason, it could have a substantial knock-on effect for your business, with sourcing suitable replacements often a long and costly process.
Craig Ryder of Go Supply Chain has seen this happen before with clients:
“If one supplier caters for more than 50% of your supply needs, then losing them for any reason is likely to be a massive blow to your business.”
To avoid this, you need to ensure you always have backup suppliers and you’re utilising services from providers with some overlap in product ranges and services. This way if one supplier does let you down, it’s far easier to quickly and cheaply replace them, without significant disruption to your business.
- Not agreeing payment terms
Often smaller businesses don’t think to agree strict payment terms ahead of taking on a contract, which in many cases can create major cash flow difficulties. This is particularly relevant when dealing with bigger companies, who can have 60 or 90-day payment terms.
If you have a range of customers all taking 90 days to pay, but you’re paying your suppliers within 30 days, then you can quickly develop cash flow problems that can be crippling for SMEs. One way to overcome this problem is to ensure terms and payment dates with both customers and suppliers before embarking on a project, and companies in the UK can now sign up to the prompt payment code set up by the Chartered Institute of Credit Management. This code states that signatory companies will pay suppliers within a maximum of 60 days, and will work towards adopting a 30-day payment policy in normal circumstances.