Don't worry if your company isn't a corporate giant. Small to medium-sized businesses (SMBs) can use supply chain management to drive a corporate strategy that increases revenues and profits.
At a time when the corporate landscape seems to be dominated by giants formed by mergers and buyouts among very large companies, you might think that small and medium-sized businesses (SMBs) don't stand a chance when it comes to growth. Yet although size does matter in the world of business, smaller companies can indeed compete in many markets. For them, supply chain management is a key that can open the door to higher revenues and profits.
In large companies, corporate strategy typically initiates and guides change throughout the organization. Areas like information technology and supply chain management are viewed as enablers of strategy and therefore are positioned in something of a support role. But in small to medium-sized businesses, supply chain management principles can actually be the driver of corporate strategies and of changes that can improve both the income statement and the balance sheet.
Granted, some might not view the idea of using supply chain management as a driver of corporate strategy as unusual. In our experience, however, it is a revolutionary concept for many companies, particularly for SMBs.
In fact, supply chain management strategies and practices can be the catalysts for transforming small and medium-sized businesses in several ways. SMBs can leverage supply chain management to boost revenues and net worth with minimal need—or in some cases no need—for additional working capital. They can use it to promote growth and expand their geographic coverage, product lines, and sales channels. Supply chain management can also help SMBs by enabling faster integration after a merger or by making them more attractive acquisition targets.
For small and medium-sized businesses to get the greatest strategic value from supply chain management, they must identify the areas where supply chain initiatives will boost revenue. In this article, we will outline some of those areas and show how they can lead to greater revenue and growth.
Flexible but underfunded?
For the purposes of this discussion, we have defined SMBs as companies with annual revenues ranging from US $30 million to US $500 million per year. Another way to define them is in terms of market share; for example, a larger company with US $500 to US $750 million in revenue could be considered an SMB if it had only a 5- to 10-percent market share.
It is difficult to quantify the economic impact of SMBs because many are privately held or employee-owned businesses that don't publicly disclose their revenues. Yet they represent a significant portion of a country's economic activity and can lead its economic growth.
The attributes of small and medium-sized companies affect how they operate their supply chains. On the plus side, SMBs have such positive attributes as adaptability and flexibility. Because they are smaller and have fewer fixed assets, they can quickly react to changes in strategy or the needs of their markets. By leveraging this flexibility, SMBs can pursue a new strategy more quickly than a large company could. In addition, they typically have flatter management structures that facilitate faster decision making.
SMBs have some drawbacks, too. They typically evolve from a single manufacturing or distribution location, adding facilities as they grow. As a result, many have not developed sophisticated distribution networks or supply chain information systems. Managers may not be well versed in recent supply chain management developments and current ideas. Moreover, they often lack the resources needed to carry out strategic initiatives for growth while concurrently addressing the challenges of running the day-to-day business.
When developing corporate strategy, SMBs often face limitations that their larger competitors may not encounter. These constraints (both real and perceived) include limited expertise in international business practices, relatively unsophisticated supply chain management, and limited capacities and competencies in product development, information technology, and business process management. They also include limited access to capital markets: Because bank loans can be expensive and SMBs often are unable to raise capital through stock offerings, they generally must self-finance growth through internal working capital.
Confronted with these constraints, executives may believe that they have no choice but to rule out revenue-generating strategies even before they begin formulating overall corporate strategy. These revenue-generating strategies can include expanding into international markets, making significant additions to product offerings, creating new sales channels, and offering value-added services. However, this is precisely where SMBs can leverage the power of supply chain management to open the door to new growth.
Pathways to growth
Before a small or medium-sized business can leverage supply chain management as a tool for growth, it's necessary to educate managers, especially those in sales, marketing, and finance, about how supply chain management can overcome the real and perceived constraints discussed above. Once the executive team understands how supply chain management does that, it can begin to rethink the strategic planning process and identify the incremental sales and marketing opportunities that could be achieved when supply chain management is added to the SMB's toolbox.
The next step on the pathway to growth is the development of a solid marketing plan that identifies supply chain-driven sales opportunities and priorities. This marketing plan should include clear value propositions for all products and services, sales forecasts by geographic market, and expectations for pricing that include logistics costs.
Once these two steps have been taken, there are many areas where SMBs can build revenue growth strategies based on supply chain management capabilities. Let's look at four that offer significant opportunities: geographic expansion, product-line expansion, continuity planning, and mergers and acquisitions.
Geographic expansion: Contract manufacturers and third-party logistics providers can help SMBs introduce their products to new geographic regions. On the domestic side, an SMB that lacks the resources to build its own distribution network in a region it doesn't currently serve can leverage the networks of its 3PLs. Of special interest to a smaller company is the fact that flexibility can be built into 3PL contracts, so that if a particular region is not a success, the SMB can withdraw without having made significant investments or incurring major penalties.
Similarly, supply chain management makes international expansion feasible with few (if any) permanent investments. This is true not only for manufacturing in low-cost countries for export to the United States but also for manufacturing in support of new, local sales activities. Manufacturing "in region" is one way an SMB can be more cost-competitive with larger rivals, because it reduces delivery costs and order-to-delivery lead times.
SMBs, though, may not have the resources to do all the legwork required to find the right partners overseas. For help, they may want to turn to sourcing firms that specialize in identifying manufacturing and logistics companies that possess the desired capabilities and strengths in a particular country or region. These sourcing firms can qualify potential partners based on the specific needs outlined in SMBs' marketing plans.
Product-line expansion: Supply chain management enables smaller companies to boost revenues because it provides an operational platform for expanding existing product portfolios or launching wholly new product lines. Once again, the marketing plan will act as a guide, articulating the necessary product and service attributes, pricing requirements, and geographic forecasts and priorities. With this in hand, the sourcing team can identify potential supply chain partners that fit this profile.
Where product expansion is concerned, it's important to be sure that potential supply chain partners (whether suppliers, contract manufacturers, or 3PLs) mesh well with the SMB's sales and marketing, product development, operations, quality assurance, and information technology organizations. It's also helpful to review the potential supply chain partner's business processes to identify any integration issues that could arise. SMBs now have greater access to technology tools that can help them streamline this process than they have had in the past. For example, product lifecycle management (PLM) systems enable real-time linkage of product data to assist at the development stage and support ongoing supply management. PLM systems can be internally hosted or are available via application service providers (ASPs). ASPs offer their applications online on a per-transaction basis and no lengthy inhouse implementations are required. As a result, they can be a far easier and more cost-effective solution for SMBs than traditional license-fee software.
Continuity planning: Risk management plans that address how a company will manage potential supply chain disruptions can be a powerful marketing tool for SMBs. A formal supply chain continuity plan that will keep products flowing in times of crisis can help even the smallest company secure more business from current customers and attract new ones. Customers feel more confidence in suppliers that have documented and tested supply chain continuity plans. Such a plan, in fact, is an effective competitive weapon because it will help to dispel the mistaken perception that a small company is always less sophisticated than a big one. This is one place where a large company does not necessarily have an advantage; contrary to what most might think, many large firms have not invested the time and effort necessary to create formal supply chain continuity plans.
Mergers and acquisitions: A time-honored path to growth for small and medium-sized companies is through merging with others like themselves, or by being acquired by a larger business. Excellent supply chain management can make a company more efficient and profitable, and therefore a more desirable acquisition target. It can also enhance the likelihood that a merger or acquisition will be a success. It can do this by either facilitating quick integration of the acquired company's supply chain, or conversely, by making itself easier for the suitor to acquire. How well either scenario progresses depends on both the efficiency of the SMB's distribution network and how easily the supply chain information systems it has in place can be integrated with those of its new partner.
Four ways to boost cash flow
It may now be clear how supply chain management can spur growth. But finding the funds to implement those strategies may be difficult for cash-strapped SMBs. Supply chain management can help: It offers four clear ways for smaller companies to finance growth.
First, supply chain management allows small and medium-sized businesses to boost revenue with minimal investment. For example, engaging external partners like contract manufacturers and third-party logistics companies lets SMBs grow their extended supply chains so they can expand their businesses without a large capital outlay. In essence, their supply chain partners help them create larger, virtual organizations with greater capacity and capabilities. These organizations can serve as platforms for launching new revenue- generating initiatives.
Second, SMBs can also use supply chain management to free up assets. One way to accomplish this is by selling buildings and rolling stock, and then leasing them back. Third-party logistics companies are good partners for SMBs that pursue this strategy.
Third, supply chain process improvements that reduce inventory will increase working capital and increase return on assets (ROA). The same is true for receivables: Shortening the order-to-cash cycle time reduces days sales outstanding (DSO), and even for a small company, reducing accounts receivables represents big money. Together, lower inventory and lower accounts receivables free up cash, enabling SMBs to self-finance and operate at a sustainable growth rate.
The fourth supply chain route to financing growth is to increase cash flow through increased efficiency. The efficiency of an SMB's supply chain has a direct bearing on its ability to reduce operating costs, which in turn increases cash flow and profitability.
Seize the opportunity
The opportunity for SMBs to use supply chain management strategies to open up new pathways to growth is truly exciting. No longer is supply chain management simply an enabler of corporate strategy for small and medium-sized companies. Now is the time for SMBs to benefit by taking an "out of the box" view of how supply chain management can actually lead revenue growth and drive corporate strategy.
For SMBs that want to grow, the concepts discussed here should provide some ideas for getting started. Even if they never reach the ranks of the corporate giants, they can still take advantage of supply chain management strategies to achieve their revenue growth targets.
Residents and businesses along the Florida panhandle today are keeping a close eye on Tropical Storm Helene, which is forecasted to strengthen into a major hurricane by the time it strikes the northeast Gulf Coast on Thursday.
Hurricane and storm surge watches are already in effect for that area, which could see heavy rain and flash flooding across portions of Florida, the Southeast U.S., Southern Appalachians, and the Tennessee Valley, according to predictions from the National Hurricane Center.
The storm would come a month after Hurricane Debby delivered drenching rainfall for days over Florida in August and after Hurricane Beryl hit Houston in July, knocking out power across the region.
As Helene continues to gather strength from the warm waters of the Gulf of Mexico, experts are warning that the storm’s impacts could include the Port of New Orleans, agricultural operations throughout the Southeast, and additional citrus and fruit farming business in Florida, according to a report from Everstream Analytics’ chief meteorologist Jon Davis.
From a supply chain perspective, additional disruptions could include rail and road transportation stoppages, closures of interstate highways I-10 and I-75, widespread power outages, and shutdowns of offshore energy operations in the eastern portion of the Gulf of Mexico, Davis said.
As the third potential hurricane to hit the area within as many months, the arrival of Helene shows that extreme weather events aren’t just anomalies, but rather they’re the new normal for shipping companies and port authorities, according to Frank Kenney, Director of Industry Strategy at the technology consulting firm Cleo.
To cope with that constant battering, businesses need to adopt a new mindset, he said. “The only way to keep supply chains running smoothly is to build resilience into every aspect of operations. This starts with diversifying logistics strategies. If a shipper is dependent on a single route or port, they’re setting themself up for trouble. Instead, it’s crucial to have multiple backup routes and options ready to deploy when the unexpected happens,” Kenney said.
Following that strategy, inland ports such as Savannah and Macon, Georgia, will likely gain importance in coming years since their locations offer proximity to ocean ports while also providing access to major highways and some protection from coastal flooding. “In short, the storm isn’t going away, but by embracing diversification, leveraging technology, and ensuring supply chain visibility, U.S. ports and shipping companies can stay ahead of the curve. The companies that prepare for these challenges now will be the ones that continue to thrive, no matter how extreme weather events rock the boat," Kenney said.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”