Small businesses are often passionate about their products. They need to be just as passionate about their role in the global supply chain.
Warning: The power dynamic is shifting as agile, tech-savvy and well-funded small businesses come flooding into the supply chain, often displacing large and aging legacy suppliers.
“Small businesses today carry a riskier supply chain profile.”
This is an exciting time for small businesses, driven by millennials and Generation Z, who look at entrepreneurship as a less risky proposition than their parents and friends who experienced the pain of the 2008 economic meltdown.
Small businesses today are more than the familiar local bakeries, brewpubs and organic farms. They are manufacturing and technology companies with leading-edge products and services, honed from regional and national start-up contests, incubators and university spinoffs. They are well-funded and well-advised.
But these small businesses also have a riskier supply chain profile. These untested companies have yet to demonstrate staying power, a commitment to customers and the business instincts needed to survive.
They also must showcase an understanding of the importance of their role and responsibilities as members of the global supply chain.
Get smart fast
I work with a number of small businesses that are passionate about their products but less informed about how to select suppliers, scale their operations and understand the challenges of their customers.
Understandably, many of these early-stage businesses are focused on their products and financing. I try to convince them that now would be the time to focus on the supply chain part of their business.
It also makes their investors and customers feel better knowing leadership is addressing these important issues early in the business lifecycle.
Early-stage companies need to pay attention to the following threats in the short term to avoid supply chain issues in the long term.
Search engine strategic sourcing. A browser and a credit card are not replacements for due diligence when it comes to selecting suppliers. It is important to find credible, established and viable sources of supply that can help the company scale when their business succeeds.
Predatory suppliers. Knowledge, not happenstance, drives the supplier selection process. Treat cold call suppliers like window replacement reps knocking on your door at dinnertime. All suppliers are looking for the next big thing and troll the early-stage incubators and maker spaces for easy marks.
Insufficient lines of credit. For many small companies, MasterCard and Visa are the only two members of the accounts payable department. Your financers and customers will want to see more substantial financial relationships with key suppliers. Be careful of inadequate credit lines when the business scales and be sure to pay your bills. “Credit Hold” is a supply chain risk. “COD” is worse.
“Free” samples. Suppliers may provide samples for use in prototypes. Be careful. They may be discontinued parts that are impossible to find again or new parts that may cause havoc with your cost modeling and delivery schedules. Prototypes made up of free samples are risky. Pay attention early to developing an accurately structured bill of materials.
Prints and specifications.Start early on properly documented prints and specifications. They will give you credibility in the supplier community and solve many downstream quality and operational issues. Back-of-napkin drawings work on television, not in the supply chain.
Confidentiality. Be paranoid about confidentiality and the protection of intellectual property. Require all suppliers to sign a non-disclosure agreement that extends to their key suppliers as well. Confidentially clauses also need to be part of your prints and specifications.
Stay focused on all these threats from the get-go, and you’ll enjoy the long-term spoils that come with diligence.
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[Top Photo: Pixabay]