COVID-19 affected businesses in many ways, not the least of which being a disrupted supply chain. A combination of butterfly effects from factory closures backing up order logs and pent up demand for new goods and services have caused supply chains to buckle under what could be described as a perfectly engineered stress test.
The consequence of this disruption is extremely long lead times for orders of all sorts of products, very unhappy customers, skyrocketing prices, and thousands to millions of dollars in missed revenue for firms forced to offer discounts or refunds due to broken delivery promises. Small business restaurant owners can’t get things like napkins or forks, contractors can’t get building materials, gym owners can’t get hand sanitizer, and even massive pharmaceutical companies can’t produce enough life-saving therapy.
The past year and recurring supply chain issues offer a number of lessons for business owners concerning how they can smooth their supply lines in the current moment and mitigate against this kind of risk in the future. In this article, we’ll discuss contemporary examples of supply chain disruption due to the coronavirus pandemic and review the best information out there from industry experts around how small businesses can start to smooth their supply chains and future-proof against supply chain risk.
Contemporary examples of supply chain disruption due to COVID-19
Stories about COVID-19’s effect on the supply chains of large and small businesses alike are easy to find, and it’s likely that you’ve experienced some of them yourself.
One issue of particular importance to a lot of recently graduated college students coming off of almost two years of isolation in university dorms and online schools looking to move into their new homes is long delays for orders and inventory stocking at IKEA. IKEA stores will have everything you’d ever want in the showroom but the warehouse is empty and then an attendant tells you it’ll take months and months for your table legs or couch to ship to your home. Factory closures in Vietnam due to the delta variant and shipping container shortages due to backlogged orders being expedited in an effort to please customers are causing 3 months, 6 months, and even year-long delays in receiving new orders of wooden furniture. This isn’t just touching large furniture stores like IKEA. Smaller regional firms are feeling the heat as well. One Texan small business owner told CNN that while typically orders or furniture take about 10 weeks to deliver, over 75% of their orders at one location are now taking 6 to 8 months.
The construction industry has also taken a hit. Lumber shortages due to delayed construction picking up and pandemic DIYers are causing new home prices to skyrocket. Production cuts and government shutdown orders, both new and legacy, have completely rattled the typical supply line of lumber. The average price of a newly constructed single-family home has risen by around $36,000 since April 2020 according to the National Association of Homebuilders (NAHB), driven in part by an increase in the “price per thousand board feet” from $350 to $1,400 in May of 2021. This has extended into other building supplies and raw materials as well. In a survey by the NAHB 90% of contractors and builders reported a shortage of appliances, 87% reported a shortage of windows and doors, and more than 50% reported a shortage of steel, insulation, roofing, siding, wiring, and plumbing fixtures, just to name a few.
The spreading delta variant is disrupting Southeast Asian manufacturing and supply chain management efforts, which is affecting businesses all over the world. Delta variant coronavirus outbreaks and lockdowns are debilitating sailor populations and disrupting overseas transport of goods from all over the world, disrupting what consists of over 90% of the world’s trade. Captains can’t rotate in fresh sailors to relieve weary crews that are dealing with some of the most intense shipping in recent memory. Deadly floods in China have also exacerbated this rupturing of global supply lines. This battery of issues in southeast and east Asia, a massive manufacturing and global shipping hub for many developed and developing economies, is having an outsized effect on the state of global supply chains and the global economy.
Taco Bell publicly stated that they’re struggling to fill customer orders, both in-store and delivery, due to transit and supply chain problems. Many other fast-food restaurants have expressed similar concerns in press releases and discussions. Pantry staple prices have jumped significantly, with things like canola seeds and palm oil hitting all-time highs. The price of corn is up 57% and soybeans are up 27%. Consumers are reporting paying significantly more at the grocery store for meat and report the same sorts of price hikes for meat-based takeout like burritos and burgers. School cafeterias are seeing issues already and expect even more once many schools return to full attendance this fall.
Practical steps small business owners can take to smooth their supply lines
In the wake of all of this, it’s important for business owners to take both reactive and proactive steps to smooth their supply chains, build resiliency, and restore business continuity. Creating an agile, robust, and disruption-resistant supply chain is critical for maintaining your competitive advantage no matter the situation or circumstance.
Perform a supply chain vulnerability audit
First, map out the supply lines that are critical to your business. Understand who supplies each of your products, what their usual lead times are, and gather data about average pricing and levels of service in terms of on-time orders. If possible, the next level of this would be to get a view of who your supplier’s suppliers are so you can anticipate when your suppliers might start struggling.
Remember, suppliers in this sense don’t just mean the vendors who send you physical goods that you sell or use in manufacturing your products. It can also mean software and information technology vendors whose applications play a crucial part of making your business run smoothly.
Then, assess each supplier and supply line for vulnerabilities. Are you “sole-sourcing” a significant number of critical inputs? Can you identify patterns in suppliers who are chronically late with orders? One vulnerability that many small business leaders are considering, for example, is an overreliance on suppliers from Southeast Asia and China. Too many eggs in one basket left a lot of small businesses crippled when COVID first took hold in East Asia.
This exercise will give you a comprehensive view of your supply chain and gives you the foundation to start shifting your supply chain strategy.
Identify backup suppliers
Prioritize your suppliers into three groups:
- Mission Critical: If orders from these suppliers are delayed or inconsistent, your business would likely have to shut down. This could be a particular food distributor for a restaurant, a lumberyard for a construction firm, or a server farm for a small software-as-a-service (SaaS) business.
- Important but Not Essential: If orders from these suppliers are delayed, it’ll hurt but you can still run your business. So what if the napkins don’t come in – you can probably get a supply in a pinch from a local store for higher than normal prices.
- Non-Critical: If you don’t receive an order from these suppliers on time, it’s not a huge deal. You could run your business in the short-to-medium term as those orders make their way through bogged down transportation and logistics routes.
Start to identify and collect intelligence on alternative suppliers, particularly for your “Mission Critical” suppliers. Collect information like where the firm is located, what their prices are, their quoted lead times, key contacts, and who they supply in your industry already. You could even do some probing by asking for supplier quotes even if you have no intention of changing from your current vendor.
On the same document that you’ve built your supply chain map created during your vulnerability audit, list out these new suppliers depending on where they could fit in.
For “Mission Critical” suppliers, you should initiate conversations to either split-source those products or develop short-notice supplier relationships should your primary supplier run into issues.
Proper risk management is critical to building a resilient supply chain.
Diversify your supply base
Many small businesses make the mistake of getting all of their supplies for a particular part of their business from one supplier. It’s easy, it’s simple, and is an easy mistake to make while you’re trying to operate your business. However, this is a crucial mistake, especially as you grow and scale your business.
Think of it as you would think about a financial investment. If you put all of your capital into one asset or one stock and it tanks, that’s it. You’ve lost all of your initial investment. If you had instead split your investment into a diversified portfolio of assets if one failed you’d still have the others to rely on.
The same concept applies to supply chain management. While some suppliers really are the only ones capable of supplying a critical product, whether it’s due to geography or that input is a proprietary product, that’s almost certainly not the case for all of the suppliers that you use in your small business. Identify where you could start to build multiple sources of supply, even if you might pay a little bit more due to smaller order sizes.
With a more diversified supply base, you won’t be as affected when one supplier has big issues unless they’re truly the only people on the market who can supply you with that particular product.
Invest in supply chain analytics solutions
If your business can afford it, investing in a supply chain management advanced analytics solution can be hugely valuable. Geographic mapping, risk analysis, financial forecasting, inventory and operations management, procurement metrics, supplier base profiling, and more can all be done more quickly, easily, and accurately with the right software solution. While they can be expensive and are only worth it to small businesses on the larger end of the spectrum, these tools can help to build automation into supply chain decision-making and provide real-time views into supply chain performance.