Small Businesses Need Supply Chain Planning Tools, Too
Supply Chain Management, Kean University and author of books on Lean and the Supply Chain for McGraw-Hill, Pearson, and Productivity Press
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Supply chain technology vendors historically have paid little attention to the planning needs of small “mom and pop” businesses. That’s surprising, considering there are approximately 32 million such businesses in the United States, with 2.7 million in the retail trade alone, according to the 2019 U.S. Census.
Why Mom and Pop Deserve Better
In the United States, small businesses, mom-and-pop shops, and entrepreneurs are the backbone of our economy. These small to mid-sized enterprises (SMEs) include brick-and-mortar retailers, e-tailers, omnichannel retailers, wholesalers, distributors, and small manufacturers that often operate with fewer than 50 employees.
Surprisingly, “micro enterprises” that employ nine or fewer people are the most common kind of private-sector business in the United States.
Failure to Launch
Depending on a variety of economic factors, small businesses can be susceptible to failure (50% fail in their first year and only 44% survive for more than four years). Making things even more difficult, during the past three years, SMEs have had to deal with supply chain disruptions resulting in product shortages and out-of-stock issues, as well as overstocks made worse by inflation.
Lack of cash flow and demand is a primary reason why small businesses fail. Some of this can be attributed to their investments in inventory (excluding pure service businesses). Having too much inventory impacts cash flow negatively and too little impacts demand, i.e. lost sales.
That is where having a robust sales forecasting and inventory planning process comes in. Sales and inventory forecasting for small business is extremely important, yet often underserved, if not outright neglected.
Having a good understanding of what future sales could look like and understanding how to order the right amount of inventory allows SMEs to develop an informed procurement strategy to make sure supply matches customer demand.
The exact sales forecast process will be unique to each business, but SMEs should at least determine their sales channels—for example, store vs. e-commerce—as well as use past sales data, factor in new products, and define forecast periods or planning buckets for up to 12 months in advance.
Next comes inventory planning. It is common for small businesses to run out of one type of product while having a surplus of another. This can be due to issues with both forecast accuracy and safety stock, which is the backup inventory kept as protection against demand fluctuations and supply chain uncertainty.
Affordable Planning
Unfortunately, it is common for many SMEs to use back-of-the-envelope and/or visual methods to manage this continuous, yet critical, process. Utilizing a low-cost application such as Forecisely.com (disclosure: I am involved in this enterprise), a small business can input the necessary data ahead of time, with all the forecasting calculations done for them.
From here, SMEs can forecast sales by channel/location, as well as project orders/re-orders while factoring in “scientific” safety stock, to determine where to focus marketing efforts and other investments.
It’s time to provide affordable supply chain planning tools for all businesses. As the saying goes, “to be forewarned is to be forearmed.”