Supply chain strategies are the main focus of well-performing companies as they identify the importance of these strategies as a competitive advantage. Even though nonprofit companies are not the first example coming to mind here, they need to ensure their supply chain efficiency as well. Additionally, they deal with a number of problems that a regular company doesn’t have, for example, big fluctuations in resources.
Especially with the recent pandemic disrupting global supply chains, charities that provide clothing or food were facing incredible challenges. Most importantly, the people reliant on those goods suffered under these circumstances, for example, in the wintertime. Another reason, why non-profit companies need to be well-prepared and plan ahead for potential crises.
This article will guide you in identifying the challenges as well as critical factors of a nonprofit supply chain, and what supply chain companies on the other side can do to support nonprofits.
- How does a Non-Profit Organization work?
- What are the Challenges of Non-Profit Companies?
- 3 Critical Factors of Nonprofit Supply Chain Management
- The Other Side: How Supply Chain Companies can help Non-Profits
- What Services does Megaventory offer for Non-Profits?
- What’s Next
How does a Non-Profit Organization work?
Just like the name says, non-profit organizations don’t have the business objective of making as much money as possible and paying it out to investors. Instead, the money is used for philanthropic causes like reducing poverty in third-world countries. They’re part of the so-called “third sector” which also includes voluntary and community groups as well as cooperatives.
Because their purpose is charitable, they qualify to be exempt from taxes. Nonetheless, non-profit companies need to make the financial and operational information public so everyone can see how the money is used.
These companies are usually privately owned and have a basic structure of three functional areas: Governance, programs, and administration. Then, the subareas can vary a lot depending on the purpose, goals, or location of the nonprofit. A few examples of non-profits not only include charities but also hospitals, universities, national charities, and foundations.
What are the Challenges of Non-Profit Companies?
On a daily basis, non-profit organizations have to deal with a lot of issues in terms of funding, supply chain management, and political restrictions. However, the main concern is certainly the lack of stable sources of donations to support their cause. At the same time, this issue can lead to an erratic supply chain since they’re dealing with external companies that might not have a philanthropic cause.
So, how much do they make
There are more than 10 million nonprofits and non-governmental organizations worldwide (Foundation Group). In the US, 76% of them have annual revenue between $0-$99000 (IRS) and only 3% can record more than $5 Million in revenue. 85% of UK-based nonprofits are classified as small with less than $569000 in annual income (sccg).
How does that impact their operations
Nonprofit companies operating on a large scale like Oxfam can afford a whole team of in-house experts to manage their processes. Keeping operations in-house allows them more control in managing processes and identifying possible improvement opportunities. The World Food Programme (WFP) has more than 87% of its employees in the field, bringing help as close as possible to the local economy. Therefore, they can save time and money on logistics. According to the WFP, they have “up to 5600 trucks, 30 ships, and 100 planes on the move” EVERY day. Imagine that.
However, smaller NPCs cannot afford a whole team working on Supply Chain Management and need to rely on outsourcing these tasks to stay within budget. What most of them lack here is foundational expertise in Sourcing and Logistics, since their core activities mostly lie in other departments.
All of this results in little freedom when it comes down to choosing transparent suppliers for their products or software for the supply chain management. Unsurprisingly, many of these companies don’t use any software at all or outdated systems.
3 Critical Factors in Nonprofit Supply Chain Management
While regular companies can put focus on efficiency and saving money, non-profits have to get supplies as fast as possible to their destination. Additionally, they need to operate in a responsible manner since it must be reportable and transparent for donors. Let’s see what the three most important factors in their supply chain are.
1. Governance & Supplier Relationships
Since nonprofits strive to achieve philanthropic goals, their operational structure should ensure proper protocol as well to prevent inappropriate behavior. Successful charities set up a code of conduct that suppliers need to agree to if they want to become a partner. However, since this step requires certain legal knowledge to set up, smaller nonprofit companies should obtain help from a lawyer or specialized organization to set it up and communicate it properly.
When a list of trusted suppliers has been made, it also needs to be shared across the company to avoid Maverick spending by employees. This term refers to the “action of purchasing from suppliers outside the pre-established procurement policy”. Maverick Buying can lead to lost savings and poses a reputational risk since products might be bought from a supplier who doesn’t meet the governance standards.
Having a nonprofit supply chain strategy in place can prevent such behavior because the purchasing process is clearly communicated across the team and everyone knows what is allowed/isn’t allowed.
2. Supply Chain Practices
Responsible behavior shouldn’t stop at the supplier level, every other process along the supply chain should adhere to the Code of Conduct as well. For example, it would be a bad sign if an environmental nonprofit doesn’t make its supply chain environmentally friendly.
Additionally, the nonprofit needs to pay attention to workplace safety measurements, not only in their own company but also in warehouses as well as supplier businesses.
In the end, it all comes down to reputation. A lot of critical touchpoints along the supply chain could impair the reputation of a non-profit company which then possibly leads to lower donations. People already rarely know where their money goes exactly in a charity, so it’s a transaction based on trust. Therefore, these companies need to have effective marketing as a way to communicate transparency and authenticity.
The Other Side: How Supply Chain Companies can make the work of a Non-Profit easier
While most non-profits receive help in the form of financial donations, they also get physical products from individuals and companies. There are three ways in which businesses along the supply chain can involve themselves in a good cause.
Companies with large warehouses sometimes need to free up space because they overstocked certain items. By donating these overstocked items, they not only do good but can also benefit from significant tax deductions. In fact, not only the cost of the inventory can be deducted but as much as half the difference between its market value and its cost. If these companies aren’t able to deliver the donations, there are nonprofits like Good360 that pick them up and distribute them.
Pro-Bono Supply Chain Management
Not every company has products to donate, so how else can a business get involved in charitable work? You guessed it, you can offer help to non-profits.
Flexport, for example, is a supply chain management company specializing in Logistics, Transportation, and Trade management. They offer free consultation services if a non-profit needs consultation and offer discounted shipping to deliver products as fast as possible.
Creating your own charity
Companies like Mcdonald’s created charities connected to their business to integrate operations into their own framework. The Ronald McDonald Houses Charities (RMHC) comprise several programs designed to help families and children. Another approach is investing in community development around company locations. Read this article by Global Giving to learn more about it.
What Services does Megaventory Offer for Non-Profits?
Not enough nonprofit companies use cloud-based software to support their supply chain management. That’s why Megaventory offers an exclusive discount for those who can identify as a registered non-profit. If you’re dealing with physical goods, like clothes, food, or similar, inventory management software can help you keep track of incoming/ outgoing goods.
Non-profit organizations need to prepare for the challenges ahead and a way of doing that is by eliminating question marks in the supply chain. Since these companies face unique challenges like a constantly tight budget, managers need to have a modern approach to managing their nonprofit supply chain with technology.
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Svea Schüler is a Digital Marketer for Megaventory, the online inventory management system that can help medium-sized companies synchronize stock over multiple stores. She believes content and social media marketing are the best solutions to create awareness and secure long-term customer satisfaction.