Supply chain management can be a massive operation requiring vast amounts of resources, and, in many cases, it puts a lot of pressure on the organization’s finances, leading to budget constraints.
Dealing with budget constraints in the supply chain is no fun. Many supply chain managers have no appetite for it. However, it is necessary if the supply chain will experience any success.
In this article, we explore strategies African supply chains can use to navigate the complex maze of budget constraints.
Let’s dive into them.
1. Adopting the Lean Philosophy
Whether or not you are battling budget constraints, waste is your enemy. However, it is much more apparent when there are limited resources. And this is where the lean philosophy can come in handy.
You want to adopt lean principles to isolate wasteful processes and operations and eliminate as much of them as possible without harming the supply chain as a whole. It goes a long way to reduce the pressure on the budget.
The lean philosophy has five fundamental principles: Defining value, mapping out the value stream, creating flow, using a pull system, and striving for perfection.
The five principles create a framework for the supply chain to run more effectively and efficiently. These, in turn, encourage a culture of continuous improvement across the supply chain and organization. Also, leading to the elimination of wasteful or unnecessary processes.
2. Start Opportunity Costing
Opportunity costing is all about priorities in the supply chain. Every department wants a certain allocation of resources. Granted, they may all be important. But some are always more important than most, especially during periods of budget constraints.
This is where opportunity costing or prioritizing resource allocation comes into play. An extreme example is having to choose between acquiring raw materials for the production team or increasing the spending allocation for the maintenance team.
You need to produce to make money, but you must also fix up the machines to produce seamlessly. If you fix the machines, you may not be able to produce, and if you produce without fixing the machines, they might break down completely.
The answer will depend on the supply chain’s pressing need and the damage the machine has sustained. But it is a great example of prioritizing in the face of extreme budget constraints.
3. Carry out a Cost Benefit Analysis of the Supply Chain
A cost-benefit analysis helps you understand how the supply chain utilizes its resources. And it gives you an insight into how you can make things better. It is an effective cost-cutting strategy that many African supply chains can benefit from, especially in the middle of budget constraints.
A supply chain cost-benefit analysis will entail an in-depth analysis of the operation, exploring the cost benefits of each process under it. To thoroughly conduct a cost analysis, you must weigh each decision against the cost incurred and its relevance to the supply chain.
With a well-done cost benefit analysis, you will be able to find out different processes being run inefficiently or costing more than they are worth. This empowers you to either eliminate or optimize them.
When carrying out the cost analysis for the supply chain, it is important to benchmark each process. This way, you can easily identify which processes cost more than necessary.
Benchmarking is comparing the cost of the supply chain processes against industry standards.
4. Demand Planning and Inventory Management
Demand planning and inventory management are two key areas that could swallow up the running cost of any supply chain. Tackling them when in the middle of budget constraints is as vital as it gets.
There are many cases of inaccurate forecasts, which typically lead to overstocking or stockouts. None of which are any good for the supply chain. Overstocking costs the supply chain more in holding costs, and stockouts lead to lost revenue.
Inventory management style can also be an issue. Many African supply chains tend to favour SKU proliferation, leading to dead stocks, which cost the supply chain money.
It is essential to tackle these issues as early as possible to prevent the supply chain from holding on to what is unnecessary. Supply chains can get the most out of these two by leveraging tech solutions, robust market research, and strategic collaboration.
5. Consider Outsourcing
Your supply chain operations may get very expensive, especially when the organization lacks sufficient expertise in specific areas or processes. An example of this could be in the logistics and transportation.
One strategy the supply chain can take advantage of is the outsourcing model. Outsourcing allows that particular supply chain process to leverage the expertise of the supplier or partner. This way, it runs more efficiently and reduces costs in the process.
Because of the model most African supply chains adopt, which is the “provide service now and get paid later” model, outsourcing also helps relieve the pressure on the supply chain finances.
It could be a huge plus for these supply chains in the middle of budget constraints because it allows them to refocus some of their finances.
𝗕𝘂𝗱𝗴𝗲𝘁 𝗰𝗼𝗻𝘀𝘁𝗿𝗮𝗶𝗻𝘁𝘀 𝗰𝗮𝗻 𝗯𝗲 𝗱𝗶𝗳𝗳𝗶𝗰𝘂𝗹𝘁 𝘁𝗼 𝗻𝗮𝘃𝗶𝗴𝗮𝘁𝗲, 𝗲𝘀𝗽𝗲𝗰𝗶𝗮𝗹𝗹𝘆 𝘄𝗵𝗲𝗻 𝘁𝗵𝗲 𝗽𝗿𝗲𝘀𝘀𝘂𝗿𝗲 𝗶𝘀 𝗵𝗶𝗴𝗵. 𝗛𝗼𝘄𝗲𝘃𝗲𝗿, 𝘀𝘂𝗽𝗽𝗹𝘆 𝗰𝗵𝗮𝗶𝗻 𝗺𝗮𝗻𝗮𝗴𝗲𝗿𝘀 𝗰𝗮𝗻 𝗴𝗲𝘁 𝗮𝗵𝗲𝗮𝗱 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗲𝘀 𝗺𝗲𝗻𝘁𝗶𝗼𝗻𝗲𝗱 𝗶𝗻 𝘁𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲. 𝗢𝗻𝗲 𝗼𝗳 𝘁𝗵𝗲𝗺 𝗰𝗮𝗻 𝗺𝗮𝗸𝗲 𝗮𝗹𝗹 𝘁𝗵𝗲 𝗱𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝗰𝗲. 𝗔𝗹𝗹 𝗼𝗳 𝘁𝗵𝗲𝗺 𝘁𝗼𝗴𝗲𝘁𝗵𝗲𝗿 𝗰𝗮𝗻 𝘁𝗿𝗮𝗻𝘀𝗳𝗼𝗿𝗺 𝘁𝗵𝗲 𝗲𝗻𝘁𝗶𝗿𝗲 𝘀𝘂𝗽𝗽𝗹𝘆 𝗰𝗵𝗮𝗶𝗻 𝗼𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻.
Obinabo Tochukwu Tabansi is a supply chain mastro and writer with a decade of experience working in different facets of the supply chain. Today he is living his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is Africa’s fastest-rising supply chain blog, helping professionals, business owners, and curious minds navigate the supply chain complexities on the continent.
