Feature: Supply chain cost control creates healthier SMBs

Wednesday 17 April 2013

Business

Small and medium-sized businesses (SMBs) are constantly seeking ways to reduce costs, without impacting on service levels and the loyalty of their customer base. In recent years, many small companies have looked to adapt their model of operation - using technology solutions, flexible working and outsourcing to streamline spending and keep their cost base under control.

But SMBs often overlook other ways of controlling costs, such as the logistics of moving goods and services throughout the supply chain. According to UPSVoice's Lisa Wirthman, SMBs need to realise that this is more than about getting products from A to B. Writing for Forbes, she claimed that SMBs need to "think big" by realising that logistics are also about planning, processes, and problem solving.

Understanding this point, and taking the necessary action, can help to create efficiency at every point within the supply chain, Ms Wirthman claimed. And this can help reduce SMB costs and boost profitability, freeing up additional funds to be invested in another area of the business. "Efficiencies can give SMBs big advantages by helping to reduce costs, maximise resources, improve delivery times, and ultimately increase customer satisfaction," she claimed.

Using external providers to cut costs

In Ms Whitman's view, one of the most important logistics decisions an SMB leader can take is to seek the assistance of outside experts. She claimed that the right help from third-party experts can help SMBs maximise productivity and output, but without the need to add to their permanent payroll.

"Technology has made contracting out non-core operations easier for small businesses by connecting them to skilled professionals around the world," Ms Wirthman noted. "Even if a task is within your skillset, you still need to decide if it’s the best use of your time. If a task doesn’t help generate income or grow the business, it may be better to delegate it to an outside source."

But SMBs must be thorough in their search for suitable partners - it is important to find an appropriate match. According to Ms Wirthman, SMB leaders should start with referrals from their peer group, or turn to professional associations, trade groups or other trusted providers.

"Tasks that are good for delegating to external parties include processes that require highly specialised knowledge - such as IT, law, and accounting - and tasks that are very repetitive, like data entry," she told the news provider. Outsourcing these will allow the business to focus on its core competencies, and free up company bosses to think more strategically and be more responsive. Opportunities for growth are out there, but if business leaders spend all their time dealing with logistics and day-to-day operations, they may not have the time to think creatively.

Keeping the finances under control

SMB leaders need to have a firm grasp on incoming and outgoing finance, or at least ensure this function is delegated to someone with the required skills. Good bookkeeping is a pre-requisite for businesses of all sizes - failing to keep accounts up to date will not only alert the tax authorities but potentially store up operational problems for the future. If part of the SMB's operation continues to cost more than it generates - with no perceivable return for the organisation as a whole - this issue needs to be flagged up immediately, allowing positive action to be taken.

Ms Wirthman told Forbes that SMBs have to conduct many of the same bookkeeping tasks as large businesses, but with significantly fewer resources. This creates obvious pressures, particularly in micro-companies with few staff, and potentially no in-house financial expert. She explained that many SMBs use accounting software to keep the financial side in order, helping to track money and manage the finer details. "The best accounting programs for small businesses are affordable, all-in-one solutions," she advised.

Control costs through energy efficiency

A third way to control SMB costs is to reduce energy consumption - a requirement that is becoming all the more pressing as fuel prices continue to rise. Going green throughout the supply chain - including planning, production and distribution - has the potential to generate significant savings.

Ms Wirthman said energy costs are often overlooked, as power is a less tangible resource than many others. Often, SMBs do not consider the amount they are spending on fuel and electricity until the bill arrives. Being more proactive in this area can, over time, make a noticeable difference to an SMB's bottom line, she suggested. "Even small 'do-it-yourself' changes like using energy-saving light bulbs, installing caulking and weather-stripping, tuning heaters and air conditioners, and fixing water leaks can provide significant savings," Ms Wirthman added.

Building healthier businesses

SMBs have had a difficult time over the past five years, but they have shown themselves to be nothing if not resilient. Despite the challenges brought about by a lack of available credit, greater competition and constrained consumer spending, many SMBs are continuing to thrive. To some extent, this is testament to the creativity and dedication of business owners - they need to offer a unique selling proposition which draws customers in. But it also suggests that company bosses are adopting a measured and organised approach to operating in a constrained economic environment.

SMBs need to generate a profit to be a viable in the long run - ensuring that both the company owner and any employees can make a living from the enterprise. Increasing sales is always the preferred way of boosting the bottom line - selling more goods and services to drive revenue. But cost reduction also has an important role to play, in terms of maximising business profitability. Keeping expenditure under control ensures the company retains a greater share of its revenue - and as such, SMBs should be looking for every opportunity to raise efficiency levels.

Posted by Steve Williams