How Small Businesses Can Manage Supply Chain Disruptions

April 14, 2022

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The global supply chain continues to stagnate as the first quarter of 2022 failed to provide clear recovery signals. Forecasts from last year (2021) of recovery in shipping delays have fallen far short of expectations. Supply chain problems are likely to continue, and some analysts predict they may worsen through the year.

Supply chain challenges are no longer regarded as short-term problems but are expected to linger well into 2023.

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In addition, there has been a prolonged inflationary trend in shipping costs and prolonged shortages of raw materials. Many retailers and small business owners will need to take immediate action to meet customer demand ahead of the 2022 holiday season.

Top Supply Chain Issues

  • The current supply of goods is limited

  • Shipping delays are causing uncertainty

  • Shipping costs continue to be elevated

  • Labor shortages persist

  • Lead times for ordering have expanded dramatically

Steps to Overcome Supply Chain Disruptions

Entrepreneurs and small business owners will need to dramatically alter their business practices to survive in the post-pandemic economy. Smaller businesses will be competing against their larger rivals for sourcing, employees, and access to capital.

The following are essential steps to manage small business supply chain challenges.

Inventory Management

The first step small business owners should take to get an accurate picture of their inventory management system. This does not require purchasing expensive software or implementing complex automation processes. Still, business owners must prioritize their inventory logistics tracking to properly make the most efficient buying decisions.

If possible, and if your business requires a dedicated enterprise resource planning (ERP) software or a more robust inventory management system. There are many options at virtually every price point.

Many businesses will likely be forced to choose from a limited set of inventory purchases. The reality is that many everyday items that companies purchased in the past will not be available or may be outpriced in the current environment.

Even if products and raw materials become available, it would be wise to plan for longer lead times and shipping delays as many providers along the supply chain will also be experiencing disruptions.

How Small Businesses Can Manage Inventory Effectively

The reality is that most small businesses don’t have sophisticated inventory management systems. It’s also unlikely that these same businesses will invest the money to purchase software or have the time to learn how to use a new system.

Some simple solutions may help small business owners track inventory and forecast the most effective purchasing options.

  • Existing accounting software – many small business accounting software solutions like Quickbooks provide basic inventory management tracking. Understand how to use these functions to help forecast future needs.

  • Spreadsheets – Microsoft Excel or Google Sheets will allow you to create your inventory tracking programs using templates that can be customized for your particular needs.

Quickbooks will give business owners a simple snapshot of inventory and provide forecasts based on sales volumes. The next step is to prioritize your purchases and start getting a sense of reality and what will not happen.

For instance, it would be helpful to know whether you can expect a particular product to be available (in-stock) when you need it and if that product can be delivered to you when you need it. It may seem like common sense, but you should take nothing for granted in today’s economy.

It’s essential to have reliable information from suppliers and ask if they have the products you need in stock. If not, you may wish to consider alternatives.

Supply Chain Management: Beyond Inventory Control

Understanding your inventory needs is critical in navigating the very difficult supply chain management disruptions caused by the pandemic. It can be the difference between thriving as a small business or closing your doors.

Beyond inventory control, there are several important actions business owners can take to ensure having products to sell to customers. The following steps are actions every business should engage in immediately.

  • make a plan to consider alternative products

  • contact and start relationships with new suppliers

  • communicate and reinforce customer relationships

Flexibility

For many companies, selling and servicing popular products stops due to lack of availability. Larger companies, as well as minor operations, need to be flexible and consider alternative products before shortages occur.

Similarly, it’s essential to continue to source new suppliers proactively. Many companies have longstanding relationships with suppliers and are uncomfortable switching to an alternative supplier. Loyalty is still a good business practice, but not at the expense of risking a shutdown of your business.

Communication

Communicating with both suppliers and customers is vital.

When communicating with suppliers, it is imperative to know exactly what they have in stock when you place an order. Many purchases these days are made on eCommerce platforms without speaking to a live person. Ecommerce platforms do not constantly get updated in real-time. It’s becoming commonplace for orders placed electronically to be rejected days and weeks later due to a backorder issue.

It’s a good practice to place your order with a live representative or confirm with a live person when you place an online order.

Similarly, it is equally essential to maintain complete transparency with your customers. If communicated quickly and transparently, your clients are likely to stay with you while you restock. When possible, alert them immediately to potential delays and out-of-stock possibilities.

Cash Flow

Cash flow is vitally important to managing your supply chain. This may seem like it’s stating the obvious…and it is, but having cash on hand for purchases is imperative.

Many companies are reporting exceptional cash flow shortages due to supply chain delays. A typical situation arises when companies must pay for goods upon ordering while delivery lead times are getting longer and longer.

If you are accustomed to receiving goods 30 days after purchase and they are now arriving 60-90 days from the order date, you are now tying-up critical cash flow.

What to do? First, speak to your vendors about temporary financing or alternative payment options. For example, ask your supplier if they could bill you when their product ships. Alternatively, you may ask for payment terms and 30-day credit when your products arrive. Many vendors offer 30-day payment terms upon submitting a credit application.

Many companies have tightened their credit terms, so this may not be an option. Another approach would be to seek a business loan from a bank, credit union, or online lender. One of the most efficient financing methods for purchases is a line of credit. A business line of credit works like a credit card in that you borrow (or buy) what you need and pay back only that amount (plus any interest). However, a business line of credit will almost always have a lower interest rate than a credit card.

Unlike a loan where you borrow a fixed amount and start to repay the principal and interest on the whole amount.

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