Raw material shortages, congested ports, a scarcity of truck drivers and other factors have contributed to major disruptions in the global supply chain. Originally triggered by the COVID-19 pandemic, these ongoing supply chain bottlenecks continue to negatively impact the economy and create ongoing complications for businesses.
Within this challenging environment, business owners must continue to meet stringent customer requirements while grappling with inventory shortfalls, rising fuel and shipping costs, unpredictable purchasing patterns and other uncertainties.
At the same time, businesses face a rising inflation rate and a well-documented labor shortage, creating additional layers of complexity and further straining the already overburdened supply chain.
For some businesses, the supply chain crisis has functioned as a catalyst to adapt their operations and modify their offerings to align with shifting customer demands and market realities. Others have had to adjust their customer service expectations in response to persistent supply chain bottlenecks.
Important Actions to Consider
Here are several strategies business owners can take now to mitigate the negative impact of the supply chain crisis, limit risk and prepare your organization for future disruptions:
- Look for opportunities to expand and diversify your supplier base by forging new relationships with alternative sources or backup options. Explore potential opportunities to form strategic partnerships with suppliers or a formal cooperative to increase your buying power.
- Assess and monitor the risk of each supply line by looking at factors such as the risk of disruptions, ability to scale and flexibility of suppliers.
- Consider shifting from “just-in-time” to “just-in-case” inventory management to avoid running out of stock because of a sudden increase in demand. This change may require you to invest in additional warehouse space or devise creative sourcing strategies for expanding your available inventory.
- Explore supply chain regionalization by moving elements of a supply chain closer to your facility to help reduce transit time and costs.
- Engage in robust long-term business planning that includes projecting potential market conditions in 18 months and outlining how the organization can adapt its operations to prepare for those potential shifts.
- Automate your supply chain to make it easier to plan ahead and spot potential problems before they become serious issues. Supply chain management software can help you track inventory, manage shipping and monitor purchasing patterns.
- Review your contracts to ensure they include a force majeure clause that enables you to negotiate any terms or unforeseen conditions that are beyond your control.
- Establish an effective system for communicating with all stakeholders so everyone is informed and there are no surprises. This can be as simple as establishing a regular cadence of email messages or distributing a basic e-newsletter.
- Stay on top of news and trends within your industry and the general economy. By anticipating a potential shortage or disruption, you can be proactive and take the appropriate steps to mitigate the negative impact of this possible scenario.
Virtually every organization has been challenged to take a hard look at their current business practices, supply chain models and level of risk as they strive to strengthen their resilience without jeopardizing their competitiveness. Sixty-seven percent of CEOs surveyed by consulting firm KPMG in mid-2021 reported they planned to increase investment in disruption detection and innovation processes.
Though unprecedented in scope and scale, the current supply chain crisis has served as a wake-up call and reminder of the importance of planning and preparing for the unexpected. Rather than viewing the disruptions as a one-time anomaly, business owners should take the opportunity to ensure their organizations are well positioned to respond to future supply disruptions and economic downturns.
To navigate this unpredictable environment, innovative companies are rethinking their conventional supply chain practices to defend against disruptions and limit risk. Novel approaches to inventory management, vendor relationships and customer interactions can help businesses successfully manage current supply chain challenges while strengthening their ability to overcome future supply chain disruptions.
- Don’t view the current supply chain crisis as an isolated event. Prepare for the possibility of future supply disruptions and economic volatility that your business will encounter.
- Communicate honestly and consistently with customers and partners about the challenges you’re facing and how you are addressing them to better serve their needs.
- Overdependence on a single supplier, or a very small number of primary suppliers, can create significant risk. Identify dependable alternative sources of raw materials and resources.
- Developing and nurturing strong relationships with suppliers at all points along the supply chain will pay large dividends — particularly during the next disruption.
- Prepare for longer lead times and the possibility of stockpiling critical components — and assess how this will impact your cash position.
- Management of working capital has never been more critical to business success. Partner with a strong financial advisor who can provide valuable guidance and creative solutions to your financial needs.
Jeff Friesen is president of the Southwest Region for Enterprise Bank & Trust. In this role, he is responsible for Enterprise’s commercial banking efforts in Phoenix, Las Vegas and Albuquerque. He also serves on the governance board for the bank’s community development entity Enterprise Financial CDE, LLC, which manages the bank’s New Markets Tax Credit allocation from the CDFI Fund of the U.S. Department of Treasury.