As a small business owner, if you knew little about supply chains before COVID-19, you likely knew a lot more after. The pandemic’s disruption to domestic and international trade was acute and long-lasting. For many small businesses, it meant a passive understanding of supply chains would no longer suffice. You needed to know the journey your products took to reach your customers. And you needed to know quickly.
Pandemic or not, understanding your supply chains is an essential step to better business. And it starts with understanding the key supply chain terms. In this article, we’ll unpack some common terms and why they matter for your business.
What do we mean by supply chain?
It’s all in the name. Like an assembly line in a manufacturing plant, a supply chain is the sum of all the steps a product takes to reach a customer. A brilliant example is coffee; a simplified coffee supply chain follows this sequence: harvesting, picking, processing, filtering, exporting, and roasting. The unofficial final step, of course, is meeting friends at your favourite cafe for a gossip session.
Two critical reasons exist for understanding your supply chains:
1. Product cost and selling price
Knowing the factors determining product cost aids the procurement process by letting you better evaluate suppliers and decide the best selling price.
2. Risk Management
We encounter supply chain issues every day. Remember the last time you went to Coles and they had no bananas? Some risks are caused by nature, some by us. Many we can’t avoid. The better you understand your supply chain, the better you can analyse and manage risk, and keep disruptions to a minimum.
Key supply chain terms
The following terms are some of the more common. The size and complexity of your supply chain will decide which terms are more relevant to you than others.
Back ordering
Think back to the time you waited half the summer for your local sports store to get you the latest Kookaburra cricket bat. Every day you called the store and every day the guy behind the counter said it ‘should be here any day’. This is back-ordering. It’s one of the few supply chain terms the public is often familiar with. Essentially, it’s when a company has put in an order for stock, but is yet to receive it.
What’s critical here is building strong relationships with suppliers. If school holidays mean a spike in gift sales, engaging with the best gift wholesalers in Melbourne a few months in advance will work wonders.
Bill of Lading
If your business sells imported products, you know all about this term. A bill of lading is a shipping document. It outlines the products you’ve bought, the quantities, and the destination. Whether you get your products by land, sea, or air, it doesn’t matter; a bill of lading must be included in the transaction. It’s more than a transaction record. It’s a legally binding document provided by a carrier to acknowledge the receipt of cargo.
Drop shipment
Another term that small businesses with limited storage space should know. This is when your vendor ships a product directly to your customer on your behalf, even though the sale has gone to you. It’s not a term limited to small businesses either, with huge corporations also taking advantage of this type of agreement. For some companies, the decision to use drop shipping might be less of a storage issue and more of a chance to break into a new market. When done well, it can help a small business diversify its range (and gain an edge in a possibly crowded market) and optimise warehouse operations. In other words: smarter, better business.
The terms above are just a handful of those you’ll encounter in supply chain management; enough exist to fill a dictionary. It’s easy to feel overwhelmed, but instead, try to stay proactive and educated. If you discover a new term, study its importance to your business. Ignorance isn’t a valid excuse in business; the better you understand the details, the better experience you can give your customers. In the end, this will decide your company’s success. Whether you’re new to business or a seasoned entrepreneur, there’s always more to learn!