Optimize Your Supply Chain For Better Cash Flow

According to SCORE, 82% of small businesses fail because of cash flow issues. Not ideal. But there's good news—there's a way to help prevent this, and it starts with your supply chain.

You see, behind every online business that sells awesome products to consumers, there's a complex supply chain making it all work. Every order involves tracking inventory, picking and packing items, and shipping them out on time. If any part of this chain breaks down, it can cause delays and unexpected costs that mess with your cash flow.

The silver lining, though, is that companies that get their supply chain right often see a big boost in cash flow stability. So, let's get into how optimizing your supply chain can keep your cash flow steady and your business in the green.

How are supply chain optimization and cash flow connected?

Before we get into how fixing up your supply chain can help your cash flow, let's first talk about how the two are connected. Essentially, making your supply chain run smoother can keep your cash flow steady. Here’s how.

Prevent stockouts to ensure steady revenue streams

Say you've just spotted the most amazing pair of shoes in an Instagram ad and clicked through to the e-commerce website, all set to buy. But, when you finally reach the checkout, you see a "Sorry, this item is out of stock" message.

You might feel frustrated that you have missed out on those shoes, but there's a good chance you'll find a similar pair somewhere else. That's exactly what happens when you run out of stock: your customers might head straight to a competitor's site and make a purchase there instead.

This isn't a rare occurrence either. Statista found that over half of global e-shoppers have reported being unable to buy products because they were out of stock. That's why keeping your inventory well-stocked is so important.

Optimized logistics lower transportation and holding costs

It's one thing to have your warehouses and inventory in good shape. But getting your transportation and shipping logistics dialed in is just as important.

Transportation can be pretty complex and, depending on your online business size, quite pricey. You've got to manage delivery times, pay truck drivers, and make sure products are delivered on time and in perfect condition, even up to the last mile.

Mastering transportation logistics (whether on your own or with a management solution) can give you a big edge. It'll help you cut down on shipping costs, streamline delivery processes, and keep your inventory costs under control.

Effective supply chain risk management avoids costly disruptions

Every business faces risks. It could be a supplier who's decided to hike their prices. Maybe it's a natural disaster that interrupted your international shipping process. Or it could even be a sudden surge in demand for one of your awesome products after a famous TikTokker gives it a shoutout.

Regardless of the change, your supply chain absolutely needs to be ready for any hiccup, or you could end up forking out a lot of cash for costly disruptions.

Good risk management means you're ready for the unexpected. It's all about spotting potential problems in your supply chain, having backup plans in place, and quickly adapting when things go wrong. This will help you avoid major issues and keep your business running smoothly.

Accurate demand forecasting prevents overproduction

Imagine you've got a hot new product that everyone's excited about. If your demand forecasting is spot-on, you'll know exactly how many units to produce, avoiding the risk of overproduction.

Without accurate forecasts, you might end up making way too much of a product that doesn't sell as expected, leading to wasted resources and extra costs. On the other hand, if you produce too little, you could miss out on sales and disappoint customers.

By predicting demand accurately, you're making sure you're producing just the right amount of product, keeping your inventory balanced and your costs in check. This helps you stay efficient and profitable.

Streamlined procurement processes help minimize lead times

If you streamline how you place orders and manage deliveries, you'll reduce the time it takes for products to move from your suppliers to your shelves. This efficiency cuts down on delays, so you can start working on your products and get them shipped out to customers faster.

After all, nobody likes to wait around for their orders, and the quicker you can deliver, the happier your customers will be. Plus, faster processing helps you stay ahead of competitors who might not be as quick on their feet.

Collaborative supplier relationships leads to better credit terms

When you build good relationships with your suppliers, you can often get better credit terms and payment deals. This means you might be able to negotiate longer payment deadlines or better prices because everyone loves a good deal.

Using accounts receivable (AR) software can really help to enhance these supplier relationships and boost your cash flow stability even further. By increasing your financial agility, you’ll be able to manage your payments and collections more efficiently, freeing up cash to invest in better terms with your suppliers.

Plus, when your suppliers are paid on time and without hassle, it builds trust and reliability, making them more likely to offer you discounted rates.

Efficient returns management ensures quicker cash recovery

Handling returns well means you get your money back faster. Quick processing of returned items lets you restock and recover cash without a hitch, so you're not left waiting around for refunds.

Steps to optimize your supply chain for stable cash flow

Now that you know how important it is to keep your supply chain running smoothly, it's time to get practical. Here are our steps to make it happen.

Assess supply chain inefficiencies for cost-saving opportunities

Start by checking out each part of your supply chain to find where you might be wasting time or money. Here's what to look at:

• Suppliers: Are they delivering on time and keeping quality up? Or are you paying too much for materials? It might be time to renegotiate or find new suppliers.
• Inventory management: Are you sitting on too much stock, which is tying up cash and costing you in storage fees? Balancing your inventory can help fix this.
• Production processes: Are there slow spots or old equipment messing up your production? Look for bottlenecks that are holding things up and consider updating your processes to speed things up.
• Logistics: How's your shipping and transportation? Are you paying a fortune in shipping costs or dealing with constant delays? Finding better or cheaper options can cut these costs.

Negotiate better supplier terms to improve payment schedules

Everybody loves a bargain, and that applies to your suppliers, too. Talk with them about your payment terms and see if you can score better deals, such as longer payment deadlines or discounts for early payments.

It's all about making your cash flow work better for you. Building a good relationship with your suppliers can also help you negotiate these terms more easily. Keep things friendly and fair, and you might just get the terms that help keep your business running smoothly.

Adopt just-in-time inventory to reduce holding costs

Let's talk just-in-time inventory. The idea is simple. You order only what you need, when you need it. Instead of stockpiling tons of products, you keep just enough on hand to meet current demand.

This way, you avoid tying up cash in unsold inventory and reduce storage costs. It's like keeping your inventory lean, which means less clutter, fewer costs, and more cash flow for other things. Plus, it means you're not stuck with piles of old stock that you can't move.

Invest in technology to improve visibility and control

Getting the right tech tools can make a huge difference for your supply chain. Here's what you should check out:

• Manufacturing software: Think of cloud-based, ERP, and MRP manufacturing software as your all-in-one tools for managing everything from production to inventory. They help to optimize material and production planning scheduling, which allows you to reduce waste and streamline your operation.
  
  
• Modeling tools: Supply chain modeling tools are useful for creating representations of your supply chain structure based on a mixture of data and assumptions. They’re invaluable for helping you to better understand your supply chain and identify any risks or bottlenecks.
  
  
• Sales data analytics tools: Data analysis and sales forecasting are vital to predicting demand and preventing over or under-production.

Enhance demand forecasting to align inventory with actual sales

You need to get better at guessing what your customers will want and when they'll want it.

Start by using data from past sales to help predict future demand. The more accurate your forecasts, the better you'll match your stock to actual sales. This means fewer empty shelves and less unsold stuff gathering dust.

Invest in forecasting tools that can analyze trends and patterns. And don't forget to keep an eye on market trends and adjust your forecasts as needed.

By nailing your demand forecasting, you'll avoid overstocking and running out of popular items. This keeps your inventory in sync with what your customers actually want and helps your cash flow stay steady.

Streamline logistics and transportation to lower delivery expenses

First, look at how you're currently shipping your products. Are you paying too much for delivery? Maybe you could find cheaper shipping options or negotiate better rates with your carriers.

Next, optimize your delivery routes. Use tools that help plan the best routes to avoid wasting time and fuel. Less driving means lower costs and quicker deliveries.

Consider consolidating shipments too. If you're sending out a lot of smaller packages, try to bundle them together. This can lower your shipping costs and reduce the number of trips your products need to make.

Final Thoughts

Maintaining a supply chain that’s efficient and streamlined is absolutely key to achieving that much-needed cash flow stability that’ll drive your business forward.

By addressing inefficiencies, negotiating smarter supplier terms, using just-in-time inventory, investing in the right tech, and fine-tuning your forecasting and logistics, you're setting yourself up for success.

Jose Sagun

Jose is Stallion's Senior Business Analyst. He helps improve the company’s shipping processes, works closely with delivery partners, and looks at shipping data to find the best prices for our customers. He also helps connect the company’s systems with those of delivery carriers to make things run smoothly. Outside of work, Jose has a passion for running, regularly completing 5k and 10k runs, with the goal of running a full marathon in the near future.