It is by now painfully clear that the vast majority of small and medium-sized businesses (SMBs) need to adopt a new approach to supplier networks and inventory management if they are to stay sufficiently agile to be competitive. If large businesses have struggled to keep what their customers wanted in stock during the supply chain disruptions of the last two years, or to bear the inventory-carrying costs of products customers no longer wanted, it has been ten times as true for SMBs.
In order to facilitate a better, more responsive and resilient supply chain, SMBs must take a wider, more inclusive view of the many different stakeholders involved in replenishment. They must recognize that they are already part of an extensive ecosystem of manufacturers, suppliers and logistics providers, and change their strategy to make the most of it.
The critical question right now is — how do we create agility? A large part of the answer lies with embracing digitization of supply chain and inventory management, and a sharper focus on data integrity, as well as efficient, fast dissemination of information among the wider community of stakeholders.
Because of stimulus packages enacted during the pandemic, a lot of money has flooded the markets, creating a significant phase of growth — not across all industries, but in many of them. And growth means not only an increase in orders; it typically means working with new people, and with more people, and adding levels of complexity. This has been particularly challenging since the initial lockdown response to the COVID-19 pandemic was a massive down-sizing of most supply chains. Then came a giant step-up, and the need to be agile came back. Suppose a business used to work with three suppliers, but those suppliers now can’t cope with the growth. That buyer either needs to incentivize the suppliers to ramp up production, or they need to find new ones.
All this has thrown a spotlight on the fact that we now live in networked economies. We’re shifting from playing an individual sport, to a team sport. For a long time, in a CFO’s mind, a priority was to focus on the health of their own business. The concern was: What is the state of our finances and how do we optimize profits? Now, because the business landscape is more competitive and more complex, those same CFOs and other C-suite executives need to think about an ecosystem.
What it boils down to is this: In order to win, it’s imperative to make sure business partners are winning too. That includes customers and employees, of course, but it also should incorporate suppliers.
In the B2B world, it’s common to hear talk about a business working with their customer or supplier, but the fascinating thing is it’s a multi-layer network. Businesses that are successfully riding this surge in growth proactively went to their suppliers and said, “We’re going to significantly increase our orders,” and the suppliers said, “That’s great, but we need to talk to our own suppliers, to make sure they can give us what we need to fulfill our commitment to you.” That process needs to go deep into the supply chain, right back to raw materials. That’s a lot of layers of the onion to peel back. Further, it may well be the case that, somewhere along the line, one of those Tier 2 or 3 suppliers can’t ramp up because they lack the resources or cash. In that case, the buyer needs to know as soon as possible, and determine whether they can offer solutions. They may, for example, be able to provide guaranteed purchase orders that a Tier 3 supplier can show a lender to secure financing.
In order to build an agile supply chain that is very resilient, it’s important to really think about this extended network in order to make sure that all the nodes the company relies on are taken care of. It’s a daunting task, but businesses that can figure it out get a significant competitive advantage. For now, at least. Pretty soon, this approach is going to be necessary to stay in the market at all. A networked business survives and thrives by taking care of the entire network in addition to themselves.
It is likely impossible to do this without calling on the power of a digital network that’s already populated with millions of suppliers and service providers. The everyday task of bringing on a new trading partner is far too complex to manage from scratch, especially for SMBs, and especially when there’s an urgent need to get that new line of supply up and running as fast as possible. Once able to plug into a network where all the pieces are connected, the speed of working together can be significantly accelerated, and it becomes possible to immediately start to exchange information, contracts, tracking data and payments. Competitive advantage comes from stepping into this digital world and benefitting from a business network that already connects all those businesses together.
Revenue and cash flow analysis shows that the average U.S. small business has only a 27-day cash buffer reserve, which means they have less than a month if money stops coming in before they have to shutter the business. SMBs need support from a robust business ecosystem to build more resilience. This is very important, because small businesses are the number one employer in the world. The stronger we make small businesses, the more jobs there will be, and the more money circulation to build and maintain stronger economies. When an economy is healthy in any given country, the number one driver is that employment is high in the SMB sector. And, yet tragically they’re typically the businesses whose needs get overlooked, Investment in getting SMBs connected into smart, supportive networks, is key to giving them the same opportunities as their bigger rivals – possibly even better ones.
Cedric Bru is CEO of Taulia.
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