Supply Chain Crisis

This article will address:

  1. What is the supply chain crisis?
  2. How is the supply chain crisis affecting small businesses?
  3. 5 creative ideas for managing the supply chain crisis and shortages

Sourcing the materials you need for your business to run is an essential part of what you do. Whether you run a retail store, a hand-made jewelry eCommerce business, or a local restaurant, every business has supplies that they can’t run without. The pandemic is a global event that has impacted how, when, and at what price you can get those materials, and your business is likely already feeling the impact. However, while you may need to tighten your metaphorical belt for a while, with a little bit of creativity, your business can remain in the black and even thrive despite a supply chain crisis.

What is the supply chain crisis?

The supply chain is the invisible path that products follow starting with their origins as raw materials, and finally ending when they reach the hands of consumers. In traditional business terms, it includes manufacturing, transportation, and logistics.

In 2021, due to the Coronavirus pandemic, global supply chains and shipments slowed, causing worldwide shortages. These shortages placed a strain on the entire commercial ecosystem and business models, particularly for e-commerce stores and startups.

Factories in parts of the world like China and Southeast Asia where a lot of manufacturing occurs were hit hard by the spread of COVID-19, causing many of them to shut down. Those that stayed open still had to reduce production because workers were sick or in lockdown.

As a result, shipping companies cut their schedules in anticipation of a drop in demand. Now, supply and demand are still out of balance, and businesses around the globe are feeling the consequences.

While many retail businesses have felt the pressure, the shortages have spanned farther, also affecting healthcare supplies, the housing and real estate market, car sales, computer and phone companies like Apple and Android, and more.

How is the supply chain crisis affecting small businesses?

Because many small business owners tend to have smaller backstocks of supplies and products, they have experienced difficulties getting new product and inventory in real-time.

Not only has it become more difficult to secure inventory, but shortages have also caused prices to go up. For some new businesses, this has dramatically affected their bottom line.

While you may have a business credit card that helps you secure certain things in the short run, some businesses have found themselves in need of a loan in order to stay afloat.

For older businesses, this may sound familiar. This is because during the last economic slowdown in 2008, many businesses, like this textile trade company, had to secure lines of credit in order to keep their business going during tough times.

Experts are anticipating that this supply chain crisis will be sticking around well into 2022, and possibly for longer. However, while this may make some entrepreneurs nervous about their business idea, this hurdle does not mean that it’s necessarily a bad time for entrepreneurship. In fact, with a little bit of flexibility and creativity, running a successful business amid a supply chain crisis is still possible.

5 creative ideas for managing the supply chain crisis and shortages

1. Focus on your internal supply chain

Finding a way to use your internal processes to better manage your inventory and logistics can help you drastically reduce the impact of supply chain issues on your business. One of the easiest ways to do this is to invest in a supply chain software solution that will help you improve your internal processes. Supply chain software will help you with:

  • Purchasing resources, including raw materials, that are required to manufacture goods.
  • Operations management like planning and forecasting, inventory management, production, and shipping.
  • Logistics like coordinating the storage and transportation of goods and ensuring that products arrive without disruption.
  • Resource management, including allocating people and resources to execute orders.
  • Information workflows to manage where data and information relating to logistics are exchanged between internal and external partners.

A software solution can help you get a clearer and more accurate picture of your current inventory and distribution management. It can also help you improve your workflows, create more effective distribution, and reduce costs.

2. Reduce costs to account for inflation

With supply chain shortages come rising costs to account for the discrepancy between supply and demand. If you’re not ready to raise your prices, or doing so won’t be enough, your business may need to consider decreasing your costs to keep you in the black.

One easy way to reduce costs is to allow employees to continue working from home. Like most businesses, your staff was likely doing remote work during lockdowns to accommodate social distancing and other health regulations. If it was working then, there’s no reason it can’t keep working.

Depending on your business and its size, you may even be able to consider closing your brick-and-mortar location. If you have the option to completely conduct your business remotely and ship your products to all of your customers, this can be an excellent way to reduce the costs that come with renting and managing a brick-and-mortar location.

If you are already operating entirely remotely as an eCommerce business and shipping your products, you could consider changing or cutting down on your shipping materials. While everyone loves relieving elaborately wrapped packages, reducing wrapping materials improves the sustainability of your brand while reducing costs.

Lastly, it may pay off to reduce traditional advertising costs and focus on more organic advertising through social media. Even with paid advertising through social media, you can save a lot of money when compared with physical ads. As a small business, you can adjust your marketing plan by:

  • Working with small influencers
  • Building your own social media presence through Instagram and TikTok
  • Using LinkedIn to shed light on the behind-the-scenes side of your business
  • Hiring student interns to help you expand your social media reach

The bottom line is that you’ll need to make some changes if supply chain issues and inflation are affecting your business’s bottom line. Get together with your team and do some brainstorming to see where you can realistically make changes that may be better for the business.

3. Diversify your suppliers

Typically, sourcing your materials from a reliable wholesale distributor and forming a mutually beneficial partnership with them is one of the more cost-effective ways to source your materials. However, if your providers are no longer able to get you what you need, it’s best to diversify.

Diversifying your suppliers can enable you to get different materials from different distributors, which can result in getting the best price for each individual product. Not only does it allow you to shop around for the best price, but it also prevents you from being reliant on only one distributor for all of your materials.

 As we saw, because many factories are based in Southeast Asia, many companies were affected by the sudden decrease in production due to COVID-19. If you’re able to diversify where you get your materials from, if one part of the world is suddenly affected by a disaster, you are not in the position of losing all of your materials.

4. Renegotiate contracts if possible

If you’re not ready or able to switch your sourcing, it may be worth considering renegotiating your contracts with certain providers. Doing so early can help you lock in a lower price that won’t change as inflation increases.

As a small business, being proactive to secure the best deals for yourself is one of the most important ways to deal with supply chain issues. Because small businesses often feel the burden the most, it’s crucial that you do this early on. Before you go into negotiations, however, ensure that you have done your research and that you know how to negotiate a lucrative deal for your business while maintaining a good relationship with your supplier.

You may be concerned that it’s too late to renegotiate because prices have already risen. However, experts are not only anticipating that this crisis will stick around, but they’re also expecting that it will soon worsen. Between new outbreaks of the Coronavirus and conflict in Ukraine, it doesn’t seem likely that the situation will be improving anytime soon.

Take advantage of the time you have now to protect your business from worsening conditions in the coming months.

5. Increase low-supply item prices and pair them with lower-cost items

If you’ve already done what you can to reduce your costs, whether by allowing full-time staff to work from home or by diversifying suppliers, but you’re still feeling the pressure of rising costs, it may be time to raise your own prices as well.

If you’re in the position of increasing the price of certain products that have become more expensive to source, one way to reduce the impact of this change on your customers is to pair them with lower-cost items sold as sets. These can often be marketed as “saver sets” or “gift sets” that incentivize people to buy.

This not only reduces the chance of friction with customers who are unhappy about price changes, but it can also help you more easily offload inventory that may not sell as quickly.

If your business isn’t well-suited to this type of solution but you are still in the position of needing to raise your prices, it’s best to do it slowly and to maintain transparency with your customers.

Raising prices slowly will reduce the whiplash that consumers are likely already feeling from the sudden hikes in prices on everything from produce to gas.

While not all businesses may be keen on being transparent with their customers about raising prices, this can be a smart move, especially as a small business.

Radial transparency will help you build and maintain trust with your customers while giving them insight into the struggles of owning a small business (they may need to be reminded that you’re human too). Because they understand why you’re raising the prices, customers may be more forgiving and even more loyal to your company because they want to see you succeed and stay in business.

Remember, your relationships with your customers are not purely transactional.

Wrapping Up

Supply chain issues are affecting businesses worldwide in every sector. While your small business may be one of the businesses that are feeling it more than most, there’s still hope for successfully running your business during difficult times.

Keep these tips in mind for getting a little creative with your operations, workflow, and finances in order to keep your business afloat. If you can successfully reduce costs and diversify your sourcing, your business will be in a good position to stay in the black during this crisis and thrive after it’s over.

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