“Scaling your supply chain” is a term often used by startups. But what does it actually mean, how can you scale your supply chain, and how is “scaling” different from “growth”?
Successful entrepreneurs experiencing growing customer demand for an exciting new food product soon face the need to increase their production volume. One way to keep up with the increasing demand is to add labor and equipment to the operations and supply chain. Although the sales volume is growing, so are the supply chain costs. The business may be growing, but it is not scaling. A supply chain model that requires adding constantly more resources at the same rate as sales is growing is not sustainable and scalable. The goal of a scalable supply chain is to increase the volume while maintaining or increasing its efficiency and therefore reducing the supply chain costs per unit.
Here are some tips on how to make the supply chain more scalable:
Commit to scale
Not every entrepreneur wants to grow its business beyond a certain size or reach when they are in a startup phase. Scaling the business, and with it the supply chain, requires sacrifice by the entrepreneurs, increased resources, and at least short term inefficiencies and costs.
If it is a priority to move the business from startup to scale-up, the company needs to commit to scale, create a realistic growth target, and develop the strategy and action plans for how growth will be achieved.
Standardize and automate processes
Although startup companies need to be flexible and nimble, implementing standardized and repeatable processes will help to scale the business. Standardized processes will also be easier to automate. A hands-on approach and manual processes are very hard to scale without additional resources in labor and infrastructure. Consider investing into order-to-cash software, using procurement platforms, investing into production equipment, or implementing online shipping tools.
As a fast-growing company, especially at an early stage, startups quite often don’t have the capital to invest in their own production capacity and storage facilities. External service providers, like co-manufacturers, co-packers, warehouse providers, and logistics companies, can help scale the business in a very flexible way and address volatile demand and supply situations. A good rule of thumb: Only outsource non-strategic tasks, not core competencies.
Startup companies need the ability to flex resources and stay nimble. But experienced talent is scarce, and startups typically don’t have the resources to hire full time specialists for every specific supply chain discipline. Consider hiring independent contractors during high growth periods or use a “supply chain as a service” model. For a monthly fee, this flexible service model will give startups access to a variety of expertise and skill-sets without the need for heavy upfront investment in people, processes and technology.
Optimize for the near and known future
Before investing heavily in additional employees or outsourcing tasks, consider whether current resources can be further stretched or better utilized. Although it’s good to anticipate growth, a company can also scale too early and burn a lot of money by doing so. Focus on solutions and tactics that solve bottlenecks in front of you and not on problems that aren’t imminent at this moment. Work to survive in the current state while starting to develop contingencies to confront future challenges.
Focus on the right things
Focusing on critical success factors helps to scale the supply chain effectively while moving the business forward. Identify the areas in operations and the supply chain that can be reproduced at a very rapid rate, without generating exponentially increased costs. A narrower product range also enables scale versus running a complex and diverse portfolio. If complexity is not being managed, it can cause failure and the inability to scale.
According to some estimates, approximately half of startups fail in the first five years of operation. There are a variety of reasons a startup can fail, but most often it comes down to the fundamentals of excess costs in comparison to revenue. In the food industry, excess operations and supply chain costs can be a major roadblock to profitability. Assessing scalability early on can be a powerful to tool to enable long term success.
About the Author
Rene Jacquat is the founder of LogiChain Solutions, LLC, based in San Francisco, United States. His experience includes operations, supply chain management and logistics in the consumer goods industry. Rene supports food & beverage companies in supply chain strategy, supply chain & distribution network design, supply chain diagnostics & risk management, sustainability and outsourcing logistics services.