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How to create a supply chain for your small business

When you’re forming a company, creating a supply chain will probably be part of your business plan, especially if you make or sell a product.

So how do you create a supply chain and what should you think about when putting one together that will work best for your business development plans? From finding companies that meet your needs, to building relationships with them to keep your operation strong, this guide aims to explain what you should know when creating a supply chain for a small business.

How to create a supply chain for your small business

Understanding supply chains and their benefits

A supply chain is basically a series of steps, involving a series of businesses, to produce and distribute a product and get it to customers. There are different types of supply chains, big and small, that work for different businesses. For a small business, this will probably work as follows:

  1. A supplier sends materials to a manufacturer
  2. The manufacturer uses the materials to make a product
  3. The manufacturer or a distributor distributes the product to a retailer
  4. The retailer sells the product in their shop to their customers

Creating and managing an effective supply chain doesn’t just mean you can get a product to a customer efficiently, t also means that each business in the chain can work together to:

  • Produce the product cost-effectively
  • React to an increase in demand
  • Respond to issues quickly and allow for flexibility
  • Achieve goals such as reducing product costs, increasing production and speeding up the time it takes to get to market

Having a vision and finding businesses who’ll meet your needs

When creating a supply chain, it’s important to have a vision and a plan of action that demonstrates what you want to achieve for your business. For instance, you should have a plan in place for how the chain will operate, a breakdown of your proposed output, and how you plan to grow your company over time. This can help you determine what types of businesses you need for your supply chain to work effectively.

Whether you’re a manufacturer looking for suppliers and retailers, or a retailer looking for manufacturers, you should aim to find businesses that can meet your needs, such as the demands you expect to see for your product. You should determine the minimum orders you need for your part of the supply chain to operate successfully and the maximum capacity you can handle. You should then find out the highest estimated output of what a company can deliver for you. For instance, the largest amount of materials they can send to you to manufacture your product, or the highest number of products they can manufacture for you to sell each week.

It’s wise not to take on a business unless you know they can meet your needs. You don’t want to get a huge number of orders for your product and then realise your supplier can’t deliver materials to meet that demand.

Visiting businesses and seeing how they operate

When you have found companies who you feel can make up your supply chain, it’s wise to arrange to meet them and see how they operate. This is your chance to see if their operation will be the right fit for your business plans, so you should gather as much information about a company as you can to feel confident they will deliver to meet your expectations.  

You should ask to see samples, client lists and portfolios of their best work. You should also arrange to have a tour of their facilities, so you can look at their production processes and the equipment or machinery they use. It’s wise to also meet key people in their workforce so you can get a good understanding of how they work and their working environment.

Testing the waters and negotiating terms

If you’re happy with what you see and learn when visiting companies in your potential supply chain, you should test the waters to see how they perform when working with you. Rather than just signing a deal for a big order, consider asking to do some test runs first in case things don’t go the way you expected.

Once you feel confident that a company will deliver for you, it’s a good idea to set out a payment plan and negotiate terms and conditions. It’s important to remember that you’re effectively setting up an ongoing business transaction with that company, but trust still needs to be built. So you should aim to set up terms that are favourable to you, which will help keep your business protected. This could include agreeing with a supplier for the first few months that you will only pay half the required amount when placing an order. You’ll then pay the remaining amount when you’ve received and checked materials are to a satisfactory standard.

Sharing information and understanding your supply chain

Once you can see you have a supply chain that you trust and have confidence in, it’s a good idea to do what you can to make it as effective as possible. This includes sharing key information about your company with other businesses up and down the supply chain to help facilitate product flow. For instance, you could provide details about your future development plans and your business continuity plans, should an incident like a power cut or flood disrupt your business’s operation. You can find out about how to create one of these plans for a new business in our guide, Business continuity for startups.

You should also encourage companies to share additional information with you, so you can completely understand every element of the supply chain. This includes things like their business continuity plan, specific work processes, distribution routes, and the time it takes to do certain tasks. Knowing this kind of information can help you best manage your supply chain and plan appropriately to meet your company’s future needs.

Providing good communication and building relationships

Keeping the lines of communication strong is key to running an effective supply chain, so it’s a good idea to set up regular meetings to make sure everything is working sufficiently. You could meet in person or chat via a conference call to give weekly or monthly updates. You should also make sure you’re available by email or over the phone to respond to issues, up and down the chain, as and when they happen.

You should also aim to build relationships with people in your supply chain to strengthen it. It’s important to take the time to get to know the teams you’re working with, and see them as humans – not just as a business’s workforce. Consider meeting up with them socially or inviting them to your company events. This way they can feel that they’re not just part of your supply chain, but a key element of your business team too. 

Helping you get your operation up and running

Creating an effective supply chain should be a key focus when setting up a company. With our expert company formation services, we can allow you to formally establish a new business quickly, so you can focus on what you plan to do best – run and develop it. The membership service includes:

  • Registration of a limited company
  • A UK domain name, which is free for two years
  • Necessary documentation and a quick and easy process to start trading right away

If you’re in the process of forming a company and would like to learn more about how our services can help you, please visit our FSB Company Formation web page. The service is included as standard with our Business Creation package. Business Creation membership also provides members with a UK Companies House approved agent with over 15 years’ experience. To find out about the benefits of this and our other packages, please take a look at our package comparison page.

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