Source: There are some basic functions and costs of a small business enterprise: general operations; marketing; inventory or cost of goods sold; compliance; and the management of all suppliers that cater to the business. Samuel K. Burlum shares a few practices that allow for better supply chain management.
The management process can be a bit overwhelming sometimes, and if left unchecked, vendors and suppliers can overstep their bounds, taking advantage of the small business. Here are a few tips on how to establish and effective vendor/supply chain management system for your small business.
I. Proper Vendor Classification. Each vendor and/or supplier has a classification and a category. It does not matter if you are a product based business (with a storefront) or only offer services (like a legal practice); most small businesses will have the following categories: vendors-suppliers which support operations (location-rent, phone, utilities, waste disposal, location maintenance, company vehicles if any); employees-human resources (including independent contractors); marketing (including but not limited to website, print materials, advertising, signage); cost of goods sold or inventory (including but not limited to any other entity responsible for your actual product or service being supplied or manufactured); and professional services (this would be your attorney, accountant, advisors, etc.). By putting each vendor into a category, it will aid you in your management process of your suppliers.
II. Separate by Paying Method. Since most businesses are now accepting multiple payment methods, and some vendors and suppliers have a specific paying methods in which they accept; some will accept only traditional forms of payment while some suppliers may be part of a barter network. This is important because if you are trying to best conserve cash, you may reach for vendors whom accept either barter and/or crypto-currency first. It is wise to have a few possible back up vendors in each category and those that accept different forms of payment in case you get short on cash and need things for your business.
III. Create a detailed, yet manageable Supply Chain Criteria. Having a Vendor Supply Chain Kit for your business is a great way to keep all of your vendors/suppliers on point. If you have specific requirements in your administrative process on how you need to treat your vendors, and the documents you need to have on file from them, you can create a kit that includes all of the required documents you must have on file in order to issue 1099’s; their vendor supplier agreement and/or consulting contract between the two parties; and any other policies you require your vendors/suppliers to follow. In turn any payment term sheets or policies the vendor may have should also be in your copy of this kit. Having these documents available in a dispute can quickly put issues to a resolve.
IV. Competitive Bid Process. In order to get the most for your money, you should have on file a procedure of a bid process for vendors to compete for your business. In some business categories, when businesses know they have to compete, they will offer more to the other business including perks and extras, or even better payment terms you might have not received in the first place. You will need to spell out specific instructions on how you will vet each potential vendor/supplier, what you expect from them, the number of units or widgets you desire, and the expected time of delivery.
V. Automate Your Supply Chain. Most large companies utilize Electronic Data Interchange or EDI, systems and software to manage just in time inventory controls and receiving/ordering of goods from vendors. This software is an investment; however it cuts down on your need for redundant order takers. You can have just one individual processing your entire purchasing, shipping and receiving, and payment infrastructure using and entrusted EDI package.
VI. Quality Control Policy in Place. Regardless if your vendor is providing you with product or a service, you should have expectations and policies in place that can aid in measuring quality control of the product or service they are providing. You need to have a system of accountability and consequences in place in case a vendor delivers sub-par product or service. This will eliminate waste and undue burdens of vendors making mistakes. Policies aimed at handling a situation that is less desirable can help your business mitigate an issue with a vendor.
VII. Yearly Review Process. Once a year, as a small business owner you should be meeting face to face with every vendor in your supply chain process. This gives you an opportunity to set goals and expectations as your business grows. In addition you can re-negotiate terms and conditions after developing a relationship and track record. This also allows you to grade your vendors and decide whether or not to continue the relationship. If market place trends change, you can present your case why you need better terms or pricing at this meeting.
VIII. Request Samples, References, and Case Studies. When you are about to contract one or your vendors for product or services, you should see if they can handle the task in the first place. You may want to ask for a test batch of product or have fact checked with a number of referrals when you are about to commit to a large dollar amount product order or services. Some of your vendors may have better niche areas than others, and you will want to offer the right job to the right vendor, thus saving you money, time, and disappointment when a vendor does not deliver on your expectation. Only you know what you want, so you much choose the right candidates based on your vision, business needs, and the price you are willing to invest into those needs.
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