Understanding your supply chain
So you are a business owner or you are just about to start your business and you know the product and service that you offer. If you are lucky enough, you have some customers that are willing to pay for your product or service at a price that makes your business profitable and sustainable.
So what does supply chain have to do with all this. You must have heard this saying “no man or woman is an island”. Well, this does not only apply in social settings, it also applies in business.
Whatever business that you are in, you are a link or several links in some supply chain. Let’s define supply chain.
What is supply chain?
A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.
So where do you fit in your supply chain and how do you understand it in the context of doing business in Nigeria. To figure out what your supply chain looks like, start out by understanding the people that are directly linked to your business – your suppliers and your customers. Starting out with these two, you can build out the remaining part of your supply chain by figuring out your supplier’s suppliers and customers, and so forth.
The baker’s supply chain – As an example
Let’s use a baker as an example. A baker produces different goods such as cakes, breads and different pastries. To make these goods, the baker requires flour, water, sugar, fruits and baking equipment. The baker could have a supplier for each of these inputs or he/she can get all their supplies from a consolidated supplier (such as a supermarket). Once the cake is made, the baker delivers the product to the customer. To get the product to the customer, the baker could deliver the product directly or hire a logistics or delivery service to get the goods to the final consumer or sell the product to a retailer that will sell to the consumer. The ingredient supplier, the delivery service and the customer are the direct links in the baker’s supply chain.
The baker can go a step further to better understand his or her entire supply chain. The baker could track back where the fruits come from. Even though the fruit was supplied by a retailer such as a supermarket, the fruit was supplied to the supermarket by a wholesaler (fruit aggregator or procurer). This wholesaler was supplied by a collection of farms that grow the fruits. If the baker did this for each of her ingredients and supplies, you can see how the chain builds out and starts getting complex.
Why is this important
So why is it important to understand your supply chain? The main reason is that it gives you a clearer understanding of your business and how you fit into the entire business landscape. It also gives you a good understanding of how materials flow from raw-material to finished products. With a better understanding of all the players in your supply chain you can make better decisions that could give you the competitive advantage that is necessary for you to succeed in your business. For instance, you may find out that one of your suppliers is too costly and you can find another one or maybe go directly to their suppliers. These are some of decisions that you have to make especially once you decide to scale your business. By understanding your supply chain, you can run your business more efficiently by saving on cost and time-to-market.
So take some time and sketch out your supply chain.