Businesses that run strong and efficient supply chains tend to generate more revenue and higher profits. In order to increase profitability through supply chain management, you can look at several different areas, including:
- inventory management - eg finding the balance between too much/not enough stock
- supply and pay agreements - eg automating processes, such as order placement, etc
- control of operating expenses - eg preventing incorrect orders, distribution errors, etc
- settlement of payments - eg solving late payments, invoicing missing payments, etc
To make the most of your supply chain, don't focus solely on the logistics. Consider where the cash goes within the processes and identify areas where you may be able to generate savings.
Impact of purchasing on profitability
Efficient and effective purchasing can be the first step towards improving your profitability. You should:
- Review your supply chain arrangements often and see if you can buy the same raw materials more cheaply or efficiently elsewhere. However, be careful not to reduce the quality of your product or service for the sake of cutting costs.
- Analyse your supply chain expenditure to find out where you spend the most money and where it may be possible to cut costs and achieve savings.
- Shop around to find the best deal. Once you know what your biggest costs are, negotiate with your suppliers and ask if you can get a discount for early payment.
Try to get a better price by negotiating long-term contracts with suppliers. You could benefit from economies of scale by buying as part of a consortium. If you can't reach an agreement for a better deal, consider switching to other suppliers.
See how to negotiate the right deal with suppliers.
Multiple suppliers vs single suppliers
There are arguments for and against choosing a single supplier for your business. Using too many different suppliers is more time-consuming and gives you less leverage to negotiate. However, dealing with only one or two suppliers can cause problems if things go wrong.
Contracting two or more suppliers for the same service may typically provide advantages in terms of:
- flexibility in the choice of sourcing solutions
- adapting to the changing circumstances
- greater protection against risks
- ability to make better contingency plans
- finding the best value for money
Read about choosing the right suppliers.