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Young companies cannot risk losing money, actually no company can stand to lose money but many companies lose a lot more than they should by making some elementary supply chain mistakes.
You do not have to be a young company to make these 5 mistakes some well established companies may slip up and make these mistakes. Of course these mistakes will have the largest impact on young companies that are not very well financially established.
Being aware of the 5 mistakes young companies make in supply chain management can help your company to avoid the greatest risks.
Over Zealous Growth Speculation
As a young company you want everyone in the organization to be eager and optimistic but you do not want to be so eager and optimistic that you wind up with more warehouse than you can fill and it happens a lot!
Let’s look at company A-a small startup that needed about 3,000 sq meter storage space but wound up looking toward the future with a little too much zeal and took on a warehouse 3X’s the size they needed. The cost outright was far higher but that was not the only issue.
It costs more for climate control for a huge uneeded space. It costs more to light it. It requires more industrial shelving. It requires more manpower hours to maintain. It is more space for housekeeping.
Ultimately it is good to be optimistic but It is not good to be so optimistic that you are paying for space that you may not “grow into” for another five years. Company A’s growth became stymied because any gains were eaten up by the additional costs of maintaining a space that was a lot larger then they needed.
One of the biggest mistakes that a young company makes is not being conservative when they are choosing their warehouse size. It is far better to be conservative with warehouse size estimations and choosing packaging that is flexible that can grow with your business.
Another big one on the 5 big mistakes that a young companies make in supply chain management is ignoring the hard data in favor or being optimistic. In some cases it is okay to have a sunny outlook about growth but it is not okay ever to ignore the supply chain data than over buying supplies or paying for things like extra storage.
Collecting reliable data about your supply chain and paying attention to it helps greatly with making accurate forecasts, choosing the right packaging/storage solutions and choosing the right amount of purchasing.
Ignoring unfavorable data or even not paying attention to the favorable data can cause quite a bit of trouble for your organization. It can keep you from having enough inventory on hand or having too much inventory on hand. It can also cause great delays in the supply chain and keep you from delivering as promised to clients.
Guessing about inventory needs is like playing Russian roulette, it is a very dangerous game. No matter how well you believe you know your clients and the overall market, ignoring hard fact data is just not an option. Young companies often do a lot of guess work and hope it will turn out okay.
Long Term Goals for Risk Management
Of course the immediate is important but one of the key mistakes that young companies make is that their risk management goals are very short sighted or non-existent.
It is actually ironic that young companies tend to project out a great deal when it comes to growth but when it comes to reducing risk they only look until the end of the year.
Part of the problem is that rewards like time it takes to get to market, turnaround of inventory and cost savings in the short term takes precedence. Risk management can be one of “those” activities that are not really a priority because of the lack of immediate reward.
Risk management activities that are focused on are usually the obvious like product security and reducing injury but the long term can often be ignored when it comes to risk management. A young company should have a matrix in place that sets clear long term and short term goals.
Packaging, transport, warehouse layout, storage and movement activities should all be a part of the matrix and risk coordinators should be assigned from each area to evaluate and implement plans for risk management activities.
Reactive Management VS Proactive Management
Many supply chain management practices that are associated with young companies are reactive models. Young management teams often manage the supply chains in reaction to events. If a crisis occurs and they are able to recover from the event quickly it sort of becomes a learning tool and sets the management style. Unfortunately typically this learning experience comes from a small crisis that does not really impact the organization yet the victory is considered proof that the management style is working.
What happens with this reactive style of supply chain is that a lot of time and manpower is dedicated to putting out fires. In addition to wasted time and resources the globalization of industry has introduced a much greater risk for supply chain interruption. The reactive model of management actually increases risk. The proactive style of management can greatly reduce risk by using forecasting and interception techniques to anticipate potential issues or weak links in the supply chain.
If there is one area where a young company needs some seasoned employees it is within the supply chain. A seasoned manager can easily root out any issues and put into place solutions that can offset the potential for a crisis which far more valuable than trying to deal with the crisis once it occurs.
Transparency and Responsibility
It is very important that the supply chain is transparent and that everyone that is involved in the chain has good open communication with everyone else that is involved with the supply chain. Transparency is important because of the second half of this most common mistake.
Responsibility! There was a famous supply chain consultant that opened up all of his seminars with a story about a very well-known computer company that did a little stumbling around as a young company and they asked for his help and the story goes like this:
“I was hired on by this well known computer firm and detected there was a very obvious breakdown in the supply chain that was affecting production. I approached the CEO and said, this is what the problem is who do I speak to about it, he sent me to his CPO (chief procurement officer), and I said, this is what the problem is who do I speak to about it, he sent me to his warehouse manager, again I said to the warehouse manager, this is what the problem is who do I speak to about it, he pointed at a young man on a forklift, I approached the young man and I said, this is what the problem is are you the person I speak to about this, this poor guy shrugged his shoulders and said, I make $8.00 an hour whether I am sitting here talking to you about your problem or if I am driving the forklift. In the end there was no one that knew who I should be talking to about the problem and the only one that would talk to me about the problem was the kid on the forklift that had zero decision making power”.
While this story is comical it has quite a powerful message. Who is responsible in your organization?
The same well-known consultant offers this advice: “CEOs hold the Chief Procurement Officer responsible for disruptions to the supply chain, although the specific parties that the CPO holds responsible for this possibility is less clear. Organizations typically don’t assign the responsibility over supply chain disruptions to anyone at the operational level within the procurement organization. This lack of accountability results in confusion when the action needed to restore the supply chain falls outside the scope of normal activities.
Effective leadership during a supply chain is typically as important in responding to a crisis as the supply system itself. This fact requires upper management to scrutinize supply managers carefully by appointing a leader in advance of such a crisis. This leader must have the proper training, tools and infrastructure that will allow the CEO to control the crisis rather than the other way around.”
Put someone in charge, keep it all up front and give out very well defined responsibilities. It is not about micro managing the staff but it is about everyone understanding what their responsibility is to the organization and it is about knowing who to go to when there is a FAIL present.
Understanding the pitfalls and mistakes that young companies make most commonly when it comes to supply chains can help you to plan to avoid those mistakes!