What Does Supply Chain Management Mean for Cash Flow?

When you manage your own business, it can be hard to keep track of suppliers and make sure you’re getting the best deals throughout your supply chain.

One thing you’ll want to see as part of this is a ‘positive’ cash flow. This simply means there’s more cash coming into your business than there is going out at any given moment. A way to ensure this happens is by implementing efficient supply chain management.

We’ll discuss why it’s important and what it means for your cash flow.

What is supply chain management?

Supply chain management (SCM) is the process of overseeing the flow of any goods or services within your business:

  • From the very beginning, with the manufacturer or supplier
  • To the very end, with your customer
  • And everything that happens in between, such as shipping, storing, and managing resources

If you’re in charge of managing the supply chain for your business (or even if you’re the only person in your business!), it’ll be your job to improve its efficiency and reduce costs where you can – increasing your chances of a positive cash flow.

What to consider What it means
How you obtain any raw materials This includes where they are sourced from, how long it takes to source them, and any agreements you have with suppliers. Your raw materials might also include items you need to deliver a service.
Your manufacturing sites (including how big they are, their location, etc) Here you’ll look at things such as the volume of goods the site can process (and how fast), how close your sites are to one another, and how your goods move from one site to the next, and how efficiently you use the space – even if all this takes place within a home workshop.
How your customer orders are processed The customer order is an integral part of managing your supply chain – it’s both the trigger and the end point of the cycle
Inventory management How you collect and dispatch your inventory has a huge impact on your supply chain – as well as how long your inventory is stored (which might affect your storage costs and therefore your profits).
Your order dispatch process This is how any inventory is removed from your warehouse or storeroom, processed, and most importantly, shipped to your customer.

As an example, if you’re looking to improve the order dispatch process then you’ll likely be aiming to have your orders sent out quickly, in the most cost-effective way. Delivering your orders safely to your customers in a time-efficient manner may increase the chances of them returning to purchase more. A higher volume of returning customers means more money coming in, and better cash flow.

Alternatively, you could go with a cheaper courier that isn’t as reliable, but in the end that may damage your reputation, leading you to less custom and potentially a negative cash flow.

The Supply Chain Management Flow

How can I manage my supply chain cash flow?

Supply chain cash flow is all about balancing the total amount of payments scheduled to go out to suppliers, versus the total amount you expect to receive from customers and other revenue sources in the same time period.

Lots can go wrong in a business, such as suppliers underperforming by taking their time with supplying the goods or sending poor stock, technology issues, or errors in your forecasting.

This means it’s vital to try and build a strong cash reserve, so if you do have a small blip while running your business – you don’t need to panic.

Effective management is key to ensuring you stay on top of your cash flow, but we understand it can sometimes be tricky to keep your head above water, especially in the face of unexpected expenses.


Negotiate terms with your suppliers

If you have a good relationship with your suppliers, there’s nothing stopping you from negotiating prices, or even asking for discounts if you order things in bulk. If you’re struggling with cash flow problems or feel they may arise, you could also discuss extending your current payment terms.

Maintaining a great relationship with suppliers means your communication will be consistent and you’ll work together to keep your customers happy. If not, you might feel it’s time to review the suppliers that you’re working with.


Encourage your customers to pay on time

Customers who are late paying the bill are a common cause of disruption to a business’s cash flow. Even though people should pay on time, every business owner has experienced someone who simply won’t pay. If you want them to pay today, you could give them a one-off discount, or add terms stating overdue payments will have interest added on to them (this may make people pay much faster, reducing any cash flow issues).

It’s also worth looking into using an invoicing system which includes automated payment reminders!


Automate supply chain processes where you can

You’ll find technology can automate a lot of the supply chain process for you, ensuring there is a reduction in errors, as well as helping you save money.

An example of this is your inventory management. If you use our very own Pandle for example, you can manage your inventory stock in ‘items.’

Items is our inventory management system that helps you automatically track stock levels in real-time. You can also add items to your invoices to populate all the details you need quickly (which makes your supply chain run much more efficiently).

How can I measure my supply chain efficiency?

You can use supply chain metrics to measure the efficiency of your SCM, such as:

  • Perfect order index – This measures the error-free rate of your entire supply chain process. Every ‘perfect’ order is multiplied to give you an overall performance indicator. While it’s not always completely accurate, it does give you more of an idea of how you’re performing.
  • Inventory turnover – This measures how many times your entire inventory has been sold in a set time period.
  • Fill rate – This looks at customer satisfaction. How many customer demands are met through stock availability?
  • Supply chain time cycle – How long would it take to complete a customer’s order if all inventory levels were at zero when the initial order was placed? This can be a great indicator of how efficient your supply chain is, or identify potential issues.

Why is supply chain management important for cash flow?

Reviewing and managing your supply chain can help protect cash flow in your business. For example, if you keep ordering stock that isn’t selling, or order too much at a time, it could tie up funds that are needed elsewhere.

Having that overview and insight into your business will help you understand what’s working and what isn’t – just remember that supply chain management is always a work in progress!

Need help managing your inventory? Learn more about how Pandle can help you, and create your free account today.

Rachael Anderson

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!

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