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Do you see your business as an island unto itself or as a vital link in a chain? If you want to maximise your profits, it is often necessary to take a wider view...
Whatever the nature of your business, the chances are that you are part of at least one supply chain that delivers products or services to the end customer or client. Looked at in this way, all the other businesses in that chain, from origination through to final delivery, are effectively your trading partners.
Everyone adds value
Each one of you has a vested interest in the performance of all the others because the supply chain is effectively a value chain in which each participant adds value at each stage of the process for which they are responsible. This way of viewing your business points up the interdependence of all the businesses in any chain of which you are a part.
In a nutshell, any value added at any stage in the process is inherited by all the businesses further down the line; and any waste, redundancy, excessive cost, or reduced value is also passed on in a similar way.
Collaborate with your trading partners
A key strategy in maximising profitability, therefore, must be collaborating with other businesses in the chain to reduce waste and increase value at every stage. For example, you might:
- Agree exclusive buying deals- approach a few 'preferred providers' with the offer of an exclusive buying deal, which could guarantee business to a supplier in return for favourable prices
- Ask your suppliers to help you reduce costs- It is becoming more common to ask suppliers whether there is a cheaper alternative specification that suits your needs. Knowledgeable suppliers can often suggest alternative materials or cheaper processes.
- Talk to suppliers to get leads- your suppliers may already be dealing with your potential customers. You may be able to establish a two-way lead-referral process.
Inevitably, such strategies begin cautiously with confidence building and trust building exercises. These should be designed to help both parties recognise areas of mutual interest and develop understanding of how you impact on each other's cost and value structures. The next stage is to develop strategies to reduce the costs and increase the value you pass on to or inherit from each other.
Breaking down barriers
This process-based model breaks down the traditional boundaries, not only between different stages of the process within your own business, but also between businesses in a shared chain. It enables you to act collectively to reduce costs and increase value so that everyone involved will reap rewards.
If you are looking for support and help from experienced accountants and business advisers, contact PKP.