Arden's Garden had reached a pivotal moment: The Atlanta-based juice company's business was robust enough for it to begin buying fruit in bulk and reaping the advantages of volume discounts. But its move away from local growers came at a price. When the first truckload of oranges arrived from a new supplier on the opposite side of the country, they came in bins stacked three high, and the fruit in the bottom bins was squashed nearly into pulp. CEO Leslie Zinn learned the hard way that any change to your supply-chain strategy can get messy. The company had hired a new shipper to transport the oranges, Zinn says, "and that led to confusion about who was supposed to spell out the packing instructions. It was a costly but very valuable lesson for us."
The lesson for you? Spell out everything. Here's how:
- Make it a team effort. Chances are, you devote little if any time to thinking strategically about your supply chain. That increases the risk that something will go wrong--and decreases the chance that you will seize on new ways to do things better. An important first step is to, as the experts say, "know your spend." Calculate the total cost of all your supply-chain activities, from what you order to what you ship. Involve everyone in your company, from purchasing to logistics to IT, ideally before suppliers are chosen. "If you strike a hasty deal with a supplier to satisfy an immediate need," says Chris Sawchuk, procurement advisory practice leader at the Hackett Group in Boston, "refining or unwinding that relationship can be hard." Create a team to address supply-chain strategy, because sometimes groupthink can be a good thing.
- Go up a weight class. Though you may feel comfortable working with suppliers that are about equal in size to your business, it often makes sense to partner with larger companies that will be able to keep up with your needs as you grow. "If you are confident about your growth," says Mark Haas, COO of gluten-free flour mix maker Cup4Cup and an adviser to food startups, "choose suppliers who will be optimal for you in the future," even if the cost of using that supplier today is somewhat higher. The last thing you want is to find out you can't meet a big order from a new client because your current supplier is maxed out. Bigger suppliers have a greater breadth of products to offer, and they can often provide useful advice on how to solve some of the supply-chain challenges that come with rapid growth.
- Work on those relationships. Opinions differ about how best to manage suppliers: Some experts say you should consolidate as much as possible to win volume discounts, while others say there are advantages to spreading your spending among several sources, when possible. Matt Crooks, CEO of Carbi-Tech, a tool-and-die manufacturer in Vandergrift, Pennsylvania, splits the difference; he nurtures relationships with the five metal suppliers his company uses most often, visiting their plants and making time for them when they visit his. "When something goes wrong, having strong ties can get you the extra help you might need," he says. Ideally, you'll make time not only for your own suppliers but for companies that support them. Creating a supplier map is a great way to visualize the interdependencies your product ultimately relies on.
- Tap into technology. Supply chains are being transformed by new technologies, including RFID (radio frequency identification) systems. As RFID tags become ubiquitous, an era of what Pedro Reyes, associate professor of operations and supply-chain management at Baylor University, calls "smart replenishment" is at hand: As supplies run low, they can be reordered automatically, while back-end systems track delivery times, product quality, and other variables. That data can provide real-time visibility into every aspect of your supply chain, letting you spot problems quickly. Greater use of automation can also allow you to redirect employees' efforts away from routine data-gathering and analysis chores to higher-value work--such as developing those all-important supplier relationships.
Additional reporting by Alix Stuart and Russ Banham