Your Small Business's Silent Partner: Understanding the True Value of Operations
From vendor relations to supplies procurement, proper office management can keep a company on track. Learn how to build a solid foundation for your small business' operations.
With so many clients to acquire and deals to make, small business owners tend to focus more attention on growth drivers than day-to-day operations.
But neglecting operations can limit that growth quickly, leaving you with inefficient processes, unhappy suppliers and a budget-draining logistics situation. The good news is that you can develop a strong operations strategy, and, armed with the right tactics and tools, your business will be more efficient than ever.
In this column, we cover some of the essentials of small business operations. We begin by discussing the basics of office management, move into strategies for better logistics and finish with some tips on strengthening vendor and supplier relationships.
Table of Contents
- Develop an Operations Plan That Fosters Growth
- Ask the Right Questions About Procurement
- Manage Inventory Like a Champ
- Strengthen Every Link in Your Logistics System
- Find Out if Outsourcing Is the Answer
- Turn Vendors and Suppliers into Business Partners
Develop an Operations Plan That Fosters Growth
Many companies grow their operations on an as-needed basis — increasing trips to the office supplies store as employees are added, for example, or doing inventory when product volume seems to be running low. But this creates a firefighter situation, where you're constantly reacting to situations and putting out fires instead of developing and maintaining efficient systems.
Tip: Here are three ways to streamline your efforts:
- Document: How often will you check inventory levels? What are the costs associated with your current logistics strategy? Are there different payment schedules for each vendor or supplier? Take time to collect all the information on the components of your operations strategy. This type of higher-level view will make it easier to see areas of overlap or potential trouble spots.
- Delegate: Designate operations tasks to specific employees. For instance, you might have an administrative assistant check office supply levels and do reordering, while a marketing team could be in charge of inventory control. Ideally, you'd hire an office manager to bring all these responsibilities into one job. Until then, making sure each task has an "owner" provides accountability and consistency.
- Evaluate: As operations become more streamlined, they're likely to create change throughout the organization. Better inventory control might increase product manufacturing, for instance. Revisit your original operations strategy on a regular basis so you understand how the pieces fit together as they shift.
Ask the Right Questions About Procurement
Procurement involves obtaining the supplies and services you need to run your company effectively — ideally in a way that doesn't take too much time away from your day-to-day business.
In a one-person company, procurement often means a quick trip to the office supply store. But adding even one more person to the mix creates the need for more structure and consistency.
Determining patterns of usage can be helpful — make note if you’re running out of paper every three weeks or seeing employees using the conference room because they find their desks uncomfortable. For true procurement savvy, however, you need to devise a larger plan for purchasing.
Tip: Be sure to ask these important questions.
- What do you need? Everyone appreciates a lavish workstation or multifunction photocopier, but keep in mind that equipment and fixed assets represent an investment of capital. Take a long-term view when making procurement decisions and invest in equipment that will give you a strong return on your purchase.
- How often do you need to reorder? Some supplies, like paper towels or printer ink will need to be replaced on a regular and frequent basis. Others, like employee PCs, will last longer but have higher replacement costs. Look at the supplies and services you use at your small business and determine how frequently you’ll need to reorder them based on usage and cost.
- Who should you use as a supplier? When choosing suppliers you must look at a variety of factors, the most important being cost versus quality. For example, there may be a local supplier that would reduce shipping costs, but the highest-quality item is from a company across the country. Running a cost-benefit analysis will help you decide which one to go with.
Manage Inventory Like a Champ
Thanks to cloud-based applications, mobile devices and other technology innovations, inventory management has become more streamlined and efficient for small businesses.
Several software tools, such as Fishbowl, NetSuite and Zoovy, are designed specifically for small and midsize businesses, allowing you to track inventory by the piece, case or carton. Many include capability for adding barcodes, adjusting stock counts, changing product pricing and sending invoices. Look for software that lets you reorder stock easily and generate purchase orders automatically.
Evaluate different software systems based on the type of business intelligence each offers. Although it's valuable to determine inventory levels, a robust application will take you far beyond those numbers into customized sales reports and useful cost-and-profit graphs.
Other important factors to consider when determining which system works for you:
- Reliable, 24/7 tech support
- Short- and long-term affordability
- Ease of setup
- Access from multiple computers
- Transparent licensing
- Upgrades as software evolves
- Sales staff who understand your industry
Tip: Several free inventory-control applications are available, but be cautious about choosing low cost over high performance. The inventory software you put in place should grow with the company, not represent a just-for-now system.
Strengthen Every Link in Your Logistics System
Every process in the logistics chain — from buying raw materials to delivering finished products to customers — has its potential weaknesses.
Products may get stored incorrectly, leading to spoilage or damage. Shipping costs may skyrocket as gas prices surge. Production may get delayed through manufacturer error. Understanding each link, and how each fits together, can help you anticipate potential issues and prevent problems throughout your logistics management.
Tip: Check out these tactics to improve logistics in your operational strategy.
- Consolidate: You likely won't find a single vendor to guide your products from development to delivery, but there are areas where one vendor can take on multiple roles. For example, your manufacturing vendor might provide warehouse services and subsequent distribution. Increasingly, logistics companies are offering more sophisticated solutions for supply chain management, taking on duties that were once split among several vendors. Consolidating in this way offers more efficiency throughout the process.
- Automate: For small companies that use office space as a warehouse for products, inventory control and distribution are easily controlled. However, as a business grows and develops a more extensive logistics system, automation is key. Whether it's through barcode technology, robust software, mobile applications and/or real-time transportation tracking, putting as many automated controls in place as possible can reduce logistics difficulties.
- Refine: Like other areas of business strategy, logistics isn't a set-and-forget proposition. What works this quarter may be too limited or too complicated next quarter. Regularly revisit your logistics components like manufacturing, storage, shipping and invoicing. Ideally, the automation you've put in place will track these areas on a daily basis, allowing you to identify opportunities for improvement.
Find Out if Outsourcing Is the Answer
Logistics is one area of a business where consultants or logistics companies can make a difference. For companies with extensive logistics needs, a reputable specialist can provide strong cost returns in the long run.
Because they consolidate operations — bringing together products from multiple customers into one warehouse, for instance — vendors can provide more efficiency than a company might achieve on its own.
According to industry publication Supply Chain Digest, logistics outsourcing has been steadily gaining popularity with small businesses because it allows them to compete with larger, more automated competitors. Companies can avoid labor issues and reduce capital expenditures through this type of outsourcing.
In a 2010 article, the magazine's material handling editor suggested companies ask several questions when choosing a third-party logistics provider, such as:
- What are you looking to outsource: all or just a portion of your logistics operations?
- How do you describe your logistics and company operations?
- What are your fixed costs and variable costs for logistics?
- If there are service problems, what are they and what causes them?
- How will you determine if the provider is meeting expectations?
- How do you effectively transition from your own operations to an outsourced one?
Tip: Similar to any major consulting or outsourced relationship, details will make the difference. When evaluating vendors, do your research (including asking for referrals) and determine what you'd like to gain beyond lowered logistics costs.
Turn Vendors and Suppliers into Business Partners
Questions that crop up in a discussion with potential third-party logistics providers will likely apply to other types of vendors as well. The number of suppliers that focus on small businesses is growing, as IT providers and consultants tap into this market.
The U.S. Small Business Administration notes there are 27.9 million small firms in the country, and about half of all new enterprises survive at least five years. So it's not surprising that many vendors and suppliers are focusing on these potential customers in their sales efforts.
To navigate all the possibilities, here are three ways to choose vendors and suppliers that will work with your company to achieve growth goals:
- Include relevant employees in vendor-selection decisions. When evaluating a potential warehouse vendor, for example, bring in the accounting department or product developers. Make sure those connections work well before committing to a long-term contract, since any friction could cause issues across your enterprise's operations.
- Don't ignore chemistry — or lack of it. It doesn't matter if you're shopping for IT solutions, logistics operations, HR consulting or media relations; every vendor-selection process will involve establishing relationships. Expertise and experience are important, but don't discount gut feelings as well. If the vendor rep annoys you now, just imagine what it will be like after you've spent days together trying to develop a customized plan for your company. Choose vendors and suppliers that are professional and skilled, but also make you feel comfortable doing business with them.
- Dig deeply into referrals. A reputable company can provide a list of past customers you can call to verify results. Although these are often satisfied customers rather than disgruntled ones, it's possible to get objective feedback by asking about challenges, problems or unexpected shifts in strategy. Schedule time for an extended conversation to develop an understanding of how the vendor truly changed operations for that customer.
Tip: Every vendor relationship is unique, but they all serve the same purpose: driving your company toward growth. Use that mission as a starting point and view their strategies through that lens.
Make Your Operations Leaner and More Efficient
With proper vendor selection, streamlined logistics and cost-effective procurement, your company's operations can become more lean and efficient. And that can help set up your small business for long-term success.