Department of Operations & Supply Chain Management

Perry's Corner: Supply Chain Knowledge Spells Profit

September 19, 2011

Perry A. Trunick
Associate Editor, Inbound Logistics Magazine
OSM Adjunct Faculty

How do you answer a simple question? It depends on who is asking.

When a small business owner asked me about getting a less-than-containerload shipment out of a foreign country, there's a simple answer. Get a consolidator at the origin port. Have a forwarder book the shipment with an ocean carrier. Have a customs broker clear the shipment at the arrival port. Get a domestic transportation company to handle the move from the port to destination.

If you're a retailer whose focus is managing a small business and forecasting and ordering for customer demand in your market category, logistics is probably not your strong suit. It's also not likely to be where you want to spend your time and energy. The perceived payback is greater in pushing merchandise out the front door, not getting boxes in through the back door.

The sad fact is that despite a superb job of marketing your business and driving traffic (and sales), you could still lose it all based on what happens in the back room and leading up to that back door. At best, you probably won't maximize your profit potential if you can't control what happens along your supply chain.

Small business owners, the bread and butter of our economic recovery if we are to believe the politicians and pundits, may look at supply chain management as a complex and sophisticated practice for large, multinational corporations, but the principles apply at every level.

There are at least five entities involved in the example small business supply chain (more if you count additional transport moves, U.S. Customs and Border Protection and other government agencies). Each of those entities brings a specialized knowledge and set of skills to bear on the supply chain, and selecting the right suppliers is the difference between money (margin) well spent or waste and inefficiency.

Inventory strategy and payment terms alone can kill profit. Domestic and import terms differ in who takes ownership of inventory when, who pays for transportation and other services and fees, and who files a claim for any loss. The details might get complicated, but it pays to ask the right questions.

As the big retailers have learned, margins are not made or lost only inside the four walls of the storefront. The whole supply chain leverages what you are capable of doing with merchandising and pricing at the customer interface. Can you afford to offer a special promotion or loyalty discount to clinch a sale? For an answer, you need to know your total landed cost for the goods in stock, not just the original purchase price. And to get that number, you have to look at your supply chain.

The choices you make along that supply chain will determine your profit. Go armed with knowledge, and ask the right questions and you won't delegate profits along with responsibilities to the wrong supply chain partners. That's true whether you're Wal-mart or Wally's Corner Market. Employers want people with supply chain knowledge and skills. Self-employed small business owners should add supply chain management to their own ever-increasing list of basic skills.

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