Your supply chain plays a critical role in your business ambitions. Therefore, it’s crucial to understand the implications your growth plan has on it and how to avoid any setbacks. In this article you will learn:

  • Why involve suppliers in your growth plans.
  • How to ensure suppliers have the capacity and ability to scale up production.
  • The three main areas where suppliers may need to invest.
  • Understanding the concept of supplier diversity and its implications for growth.
  • Considerations beyond production.

Don’t Overlook Your Supply Chain

Business growth brings numerous challenges that require careful planning and management in order to reduce the risks associated with that growth. Supply Chain pressure is one of the things business owners should anticipate and plan for when their business is growing. In this matter, the challenge is strengthening the supply chain to ensure it can handle greater volume without compromising quality, availability or delivery times.

This is a key point and one that most people miss. They are focused on their own organisation and the impacts on them. Most assume that they can get their hands on additional raw materials. But that might or might not be the case. For a range of reasons, supply may be constrained.

Let’s say the company’s suppliers are themselves pretty much at capacity. They might love to have some additional sales. However, they might not have a truck available to transport the materials to the factory on time, every time. Or maybe the inputs themselves are hard to get. A company’s growth can also bring financial implications to their suppliers. Meeting increased demand will impact their cash flow and may even create the need for more funding. So, just as you are, suppliers also have to ‘gear up’ for the growth they will experience.

Learn how BridgePoint Group can help your business grow efficiently.

Ensuring the supply chain can handle your growth

From the supply chain perspective, your company’s growth will likely require a reasonable lapse of time between developing the “growth plan” and the actual production of the raw materials your company will need to execute this plan. This is because, depending on the volume required, your suppliers may need to invest on three fronts: machinery, people, and physical space (or a combination of these factors).

Every well-crafted growth plan understands and considers all the implications your company’s growth has on your suppliers’ production capacity. In this sense, going one step further, the sub-supplier (the one who supplies raw materials to your supplier) also needs to be considered in your long-term planning. This way, all players in the chain are adequately structured to meet the new demand.

Why involve my suppliers if the growth plan only concerns my company?

That’s a common belief – that your business growth only depends on you. Well, this is partially true. Therefore, it’s also partially false.
It is important to remember that most companies do not operate at full capacity. Generally, suppliers work at an average of 80% of their production capacity. The remaining 20% is the necessary margin reserved to deal with eventualities such as breakdowns, raw material shortages, lack of qualified labour, or unexpected stoppages for various reasons. This means that an increase in demand from your company can be met as an exception to your supplier’s normal process, and on a one-off basis. But it is unlikely to become the rule without adequate planning involving all parties. That has clear implications on the three fronts mentioned:

  • People: Increasing production volume with the same machinery and physical space requires more personnel. This can be through hiring more labour or scaling up the current team’s workload to produce in two or even three shifts, perhaps weekends too. However, the latter depends substantially on local laws and may involve higher labour rates.
  • Physical Space: Increasing physical space for production, whether for new machinery or raw material storage, is a costly and long-term commitment. It’s crucial to ensure the supply chain can meet future demand, which can only be addressed if physical space undergoes adaptations. No supplier will expand is physical presence without the guarantee of sustainable demand that justify 100% of such an investment.
  • Machinery: Increasing production by purchasing more machines doesn’t immediately result in higher output. New machines are often made (or modified) to order and require long lead times for production, shipping, installation, commissioning and integration into the existing production process including safety and operational training.

Supplier Diversity

Another fundamental aspect is understanding the supply chain’s diversity. When supply is restricted to a few countries, or few companies specialise in production, your new demand might necessitate investments from current suppliers. Generally, a higher demand from a single client doesn’t justify significant investments in machinery, people, nor physical space unless other companies (it means your competitors) also increase their demand for the same product. If that’s the case, your business is not experiencing ‘real’ growth, it’s just rising with the tide.

It’s worth checking out this article from Resilinc, which presents four ways to develop a demand-responsive supply chain.

Not Everything is About Production

Ensuring the supply chain can meet new demand is not solely about production capacity. Another crucial factor is the knowledge of transportation means and costs for moving and distributing materials. This has two main implications:

  • Machinery Transport Costs: The cost of transporting machinery to the factory can be significant. For instance, buying semi-new machinery might seem attractive due to lower purchase costs, but transportation expenses can make it more costly than new machinery.
  • Transport vs. Storage Costs: The challenge is to find the ideal balance between the frequency of raw material deliveries to avoid disrupting manufacturing processes and the storage costs associated with maintaining an inventory.

Growing Your Company Also Means Growing Your Surrounds

As we’ve seen, your company’s growth plan should not only involve your executive team or a superficial consultation with your suppliers. In practice, a growth plan that considers only the company’s internal capacity carries a higher risk of failure. The supply chain is a crucial part of your growth. Without adequately involving it—with enough time for adjustments and alignment of expectations—your company risks failing to deliver on its promises to clients, leading to adverse outcomes. Remember, your supply chain is not a group of suppliers. They are strategic partners when it comes to achieving your ambitious growth plans.

If you’re working towards expanding your business, you’re probably overwhelmed with all the new demands. For most, successful and sustainable business growth is enabled by adding experts in fields that you aren’t familiar with yet. It’s recommended to seek advice to achieve the best outcomes possible. The BridgePoint Group team has extensive experience in helping companies on their expansion journey. If you have ambitious goals, we would be more than happy to help make your plans successful.

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Neil Parker
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