Staying competitive in today’s dynamic business environment is challenging for any organization. As a mid-market company, market expansion may be the right move as you pursue new business opportunities. Although the supply chain is historically perceived as a cost center rather than a value center for many organizations, when the supply chain is aligned with business strategy, you can create a powerful tool that keeps your mid-market business agile as it expands into new markets.
Your mid-market company, however, cannot grow faster than its supply chain infrastructure; understanding the range and limitations of your supply chain is critical for expansion. Your supply chain should be robust enough to withstand changing local, social and environmental demands while remaining agile enough to react to market shifts. This article explores some of the supply chain risks to expansion and provide strategic recommendations on how fine-tuning your supply chain can alleviate those risks.
Many of the risks that every mid-market organization faces each day fall under the supply chain umbrella. A complex supply chain with large numbers of moving parts, tight customer fulfillment timelines and demand volatility is increasingly driving outsourcing to become the rule rather than the exception. Whether risks are deal-breakers, or simply force your company to think or operate outside its comfort zone, it’s important to view multiple perspectives. Here are some risks common to the supply chain that your business should consider.
Outsourcing manufacturing can come with risks that are not immediately obvious. It may be difficult for your company to financially consider expanding into new markets if the margins for your mid-market business are flagging under the weight of price and total landed cost.
The economics of outsourcing changed in recent years; companies studying outsourcing must also consider oil and natural gas prices, environmental concerns, inflating wage rates, political climate, weather and other natural disasters, substandard and/or toxic ingredients an outsourced supplier may use, and more. Any disrupted points in your outsourced supply chain can cause a domino effect that produces lasting negative results for your customer.
Environmental and Social Risks
A study performed by Cone Communications in 2013 indicated that 71 percent of consumers consider the environment when they shop. Consumers are increasingly informed about the influence of the supply chain on the environment and are prepared to vote with their dollars—Nielsen reports that more than half of consumers (55 percent) indicate a willingness to pay extra for products and services from businesses that reflect positive environmental and social impact.
An example of how social impact can shape consumer preference occurred in November of 2012, when a garment factory fire killed more than 100 workers, and in April of 2013, when an eight-story clothing factory building collapsed—both in Bangladesh. The brands associated with these manufacturers took a hit in the media and in sales; consumers were outraged to learn about the conditions in these factories and demands for change spread across the globe.
Last-Mile Distribution Centers
Today, customers expect cheap and fast delivery, and more retailers are offering deep discounts on rapid shipping than ever before—and that leaves little room for error. Many companies have multiple store locations that each serve as an independent logistics silo. Your mid-size business may need to determine whether this method or a consolidated distribution center can provide the best last-mile delivery experience for the customer.
While outsourcing customer returns can seem alluring—after all, you are in business to sell products, not sacrifice profits on returns—there are often additional considerations to make prior to determining if it is the strongest strategy.
The risks of outsourcing returns are softer than manyother business risks, but they come at a level that is verypersonal to your customer. If you wouldn’t consideroutsourcing customer service, you may not want tooutsource returns—ensuring the returns process is aspainless as possible is crucial as it is potentially the last step in the transactionexperience a customer has with you and your product.
There will always be customer returns. Third-party fulfillment and returns companies are intended to be generic as they attempt to meet the needs of a wide variety of their customers. Unfortunately, these attempts are often considerably less efficient than the returns your company can process by itself. You know what your best sellers are, you know how best to package them and you can maintain control of the entire process. If you aren’t processing the returns in house, you may miss the opportunity to gain feedback about why the items are being returned.
Tune up Your Supply Chain Before Entering New Markets
Think back to the environmental and social risks discussed earlier. Would you know which of your products were being sourced in affected areas? How long would it take you to find out? You need timely, reliable, detailed, and easily accessible supplier and sourcing information. Possessing a profound understanding of each aspect of your supply chain empowers you to define the balance particular to your business’ performance objectives, including flexibility, reliability, cost reduction, speed and sustainability.
Organize and Optimize
One of the first challenges is to learn what supply chain technologies are available, then take those capabilities and put them to work for you. A single system may not meet all your needs; in that case, it is important to try to find systems that can talk to each other, at the very least.
Bill Gates once said, “How you gather, manage and use information will determine whether you win or lose.” This advice can easily be applied to supply chain data integration and collaboration. At Smart Conference, 70 percent of senior supply chain executives indicated supply chain visibility as a key improvement objective. They understand that a mid-market company can increase profit by reducing complexity or isolating actions.
Today, mid-market businesses are organizing policies and processes to optimize ordering, storing, producing and distributing raw materials as well as finished goods. Data integration and collaboration solutions can provide views into the big picture, helping buyers and suppliers find and correct idle assets, shortages, bottlenecks and excess that can impact cash flow.
Forecasting and Meeting Demand
New market entry points can be challenging for any middle market business. Establishing a healthy, well-tuned supply chain before market expansion can help facilitate your entry into new markets with the ability to better forecast:
- Sales. Fine-tune order quantity and type—carry only what you need to fulfill orders on a regular basis, eliminating the carrying cost of physical inventory in warehouses, on the production floor or on retail shelves.
- Product volume. Higher frequency and smaller deliveries allow you to adjust product volume to keep pace with changing demand and production requirements.
- Scale. Large and high-volume orders often mean lower prices with better terms and conditions.
- Cash flow. Carefully planned delivery policies and terms may offload much of the capital required to finance, deliver and carry inventory assets to the seller.
To successfully leverage your supply chain as you expand into new markets, it’s important to have a sound business plan in place—and update it regularly—to ensure you remain on track for the goals you set for your mid-market organization. Even if your business is still in planning phases, evaluating how you can overcome obstacles in your supply chain can help you overcome these issues to penetrating new markets.
Vincent Spadafora is an account executive at TAKE Supply Chain, where he assists companies in reducing their cost of goods sold by automating their supply chain and creating lean operations. He leverages more than 10 years of experience in process mapping, process reengineering and operations developed in small to large international business settings.