For your company to thrive, it is almost a necessity to work with people outside of your business. These external parties provide a number of resources that help your company. Although the concept of a supply chain is typically thought of relating only to products, there are a number of different items that flow across suppliers, companies, manufacturers, retailers, and customers.
The basic concept of a supply chain is to move goods. One company turns raw materials from a supplier into finished inventory. This inventory may flow to a different company for sale. This retailer passes the good along to the customer. Knowing exactly how your small business touches the product enhances your ability to make relationships with the right people.
Of course, these goods come with a price. The manufacturer exchanges funds for the raw materials. In exchange for their labor, they receive funds from the retailer. In exchange for the final product, the retailer trades the finished good for money. The important aspect for your small business is realizing the mark-up process. As the materials flow through the supply chain, they become more expensive.
The reason a product increases in price as it moves along the supply chain relates to the value it holds. A pile of wood is useful. However, the same pile of wood assembled into a kitchen table is more useful to many people. Depending on where your company lands within the supply chain, assess how much value you could potentially add to the products or materials you handle. The more value you are able to contribute to the supply chain, the greater resources you can demand in return.
Products and materials can’t move through the supply chain without being accompanied by the flow of information. A company who needs the materials or products submits a requisition or purchase order. This order may not be placed without having received a pricing quote in advance. As the goods are shipped, tracking information is distributed. Upon the completion of an order anywhere along the supply chain, feedback is provided in the form of a customer survey. Gauge your place in the supply chain so you understand what information you have access to. By collecting more data, you learn more about your suppliers, customers, competition, industry, products, and ways of improving business.
Whoever holds the products or materials either controls risk or incurs risk. Holding products or materials means you control part of the market. However, if the value of the good substantially decreases, the liquidity of the products decreases. This means you have a greater difficulty in converting the materials or products into cash. Assess the likelihood of this happening to your small business by evaluating your industry, relationship with customers, and importance of the goods you offer to the market.
The supply chain is much more than a way for one company to sell another company goods. Materials, money, value, information, and risk are all transferred as products flow through the supply chain. If you know where you company lies along the supply chain, maximize the amount of resources that flow into your company.