One of the most common complaints from startup entrepreneurs is that there is simply not enough money to get the job done. Say what you will about the benefits of bootstrapping, a slight addition in cash flows can be the difference between success and failure. To survive these lean years and create a business that can prosper, you're going to have find unorthodox ways of keeping your supply chain costs very low. Follow the three tips below to stop up any value-leaking holes that might sink the ship before it leaves port.
Show your suppliers a win/win scenario.
In the startup environment, all options are still on the table. Your supply chain is still being designed and relational dynamics with suppliers are not set in stone. There is an enormous opportunity to be intentional in setting the tone for your supplier relationships.
Stephen Covey brought the idea of "thinking win/win" to notoriety and it is imperative that you apply it during these early stages. Considering the exponential growth that your company is destined for is thrilling, no doubt. It's also thrilling for your suppliers! The manufacturers you depend on face a scalability curve, likely one that is very similar to yours. Having a bright customer bound for good things will help improve efficiency within their own business and give them a solid shot at success.
If you can communicate this long-term message early, you'll be able to drive for a bargain from day one.
Get a handle on margin stacking.
The complexity of your supply chain is likely only going to increase as your company grows and adds more successful products to its offerings. The present simplicity of your operation gives you a chance to build understanding of your value stream that will be much harder to glean down the road.
The basics of margin stacking are that at each level of your supply chain, value is being added and the contributors are extracting a certain surplus. For every company that works on your product, from minerals of the earth to final product, there is a markup in the price. If your supply chain was completely vertically integrated, there would be no markup and the margin, or surplus value, would be entirely yours to extract.
Since it is highly unlikely that this will ever be the case, it's crucial for you to understand where your margin is going. Who is extracting the most value upstream in the chain? By analyzing this now, you will be able to minimize margin stacking throughout the life of your venture.
Find ways to maximize your supplier choices.
It’s much easier to include supply chain concerns in your product design and bill of materials early in the corporate growth cycle. Be sure that you are designing a product that gives you choices in your suppliers.
At times, you are truly constrained. Sometimes it is necessary to use materials that are not available from multiple suppliers, or to source assemblies from a highly specialized manufacturer. However, for every product component that can only be produced by a few, select suppliers, you are reducing your vendors’ need to compete for your business.
Competition drives out margins and lowers prices. Although competition sounds ominous when you think of your own market space, this economic principle works in your favor on the supply side of your business. The key, then, is to bring competition into your supply chain.
By designing your product to maximize the choices you have for component vendors and assembly suppliers, you create the opportunity for competition, which will insure that you get the best price for the highest quality components possible. Combine this with creating a balanced product design and you will minimize margin stacking and deeply reduce your costs. This is your chance to make competition your ally, instead of a challenge.
The startup and early growth stages are where companies face some of their greatest tests, one of the largest being to overcome the daunting cost curve that comes with being a startup. Give your supply chain the consideration it deserves and the cost savings will help you stay afloat!
By implementing the strategies above, your startup will be fighting fit through its lean years and ready to explode into fast paced growth.