Supply chain interruption is not uncommon. Natural disasters, human errors, political unrest, and climate change have always impacted procurement throughout history.
Typically, these issues have been localized and easier to fix. The COVID-19 pandemic, however, has forced companies to face a new challenge: disruption on a global scale.
This crisis is causing many small businesses to rethink their strategies for integrating and managing the supply chain. Companies are looking for ways to save money on both products and shipping and improve the efficiency of the process.
Understanding the why behind these challenges and planning for the future is key to mitigating the risks for future supply chain issues.
Impact On Supply Chain
While many small businesses have emerged from the continuing pandemic into a very different world, the disruption to supply chains continues to be severe. As economies restart, with government help, the supply chain will be critical to quickly, safely, and securely supply goods and services.
The repurposed and reshaped supply chains of the future will need to be characterized by resilience and responsibility. These will help communities manage the short-term crisis and enable businesses to build around their customers, and help economies rebound.
Responding to Supply Chain Challenges
With the COVID-19 crisis, fundamental changes in consumer behavior, supply chains, and routes to market are knocking companies off balance. Moreover, responding to the pandemic has underscored the need for leaders to accelerate the adoption of agile ways of working and value chain transformation to help outmaneuver uncertainty.
The Challenge of Rising Costs
Supply chain and operations are becoming more costly and can often represent a company’s highest costs. As a result, inflation is real, and many companies (large and small) have raised prices.
Luckily, consumers aren’t surprised by these changes, and conversions have stayed relatively stable despite price increases. Nearly 50% of my clients either have raised prices or plan to shortly (average 5-10% increase, focus on those products with lower margin). It’s easier to implement a price increase when it’s happening across the globe.
In the consumer product goods world, wholesale price increases influence retail price points, which require more lead time. So it’s important to plan now for Q1 2022 price increases.
Another way to make up for the costs of supply chain challenges is to start charging for shipping or increase the threshold for free shipping, especially for low AOV products. These costs will continue to rear their ugly heads for quite some time, so implementing a strategy to help prevent being in the red is vital.
The Challenge of Inventory Management
Inventory management can be a significant factor in how efficient and cost-effective your supply chain is. If possible, make sure that all inventory levels are easily tracked using barcodes or similar technology to identify items. This will help you manage different product lines and understand how much inventory is coming in from your suppliers. By keeping track of inventory levels, you can determine which products and materials should be outsourced and which items could potentially need a price reduction.
Using a digital platform to manage your inventory is vital to succeeding in the future. Digitizing supply-chain management improves the speed, accuracy, and flexibility of supply-risk management. By building and reinforcing a single source of truth, a digitized supply chain strengthens capabilities in anticipating risk, achieving greater visibility and coordination across the supply chain, and managing issues that arise from growing product complexity.
A major challenge in today’s inventory management strategy is the current historic lead times of deliveries which are predicted to continue. From port traffic and transportation bottlenecks to material shortages to struggles to replace the upended workforce, having a solid knowledge of your inventory is vital for business continuity.
The Challenge of Working With Third Parties
When working with third parties, make sure that they understand your company’s needs upfront. Both sides of the supply chain process need to communicate about what each side is doing and how they can help one another. By working together, you can reduce both time and costs.
When outsourcing the manufacturing or production process to a third party supplier, make sure that this supplier has certain qualities:
- Good quality control procedures (e.g., ISO certifications)
- Skilled employees with qualifying certifications
- Experience in the industry and with similar products or services you are outsourcing for
- An effective quality assurance process (e.g., ISO/IEC17025) that continuously works to improve their product or service according to your company’s needs
When using a third-party supplier, be sure they order enough materials at one time to avoid running out of supplies. Even if it means spending more money upfront to buy things in bulk, this will save you money and time in the long run. If cash is short, you can finance inventory through cash flow management platforms Settle or Upside Financing.
As the crisis takes its course, constrained supply chains, slow sales, and reduced margins will combine to add even more pressure on earnings and liquidity. Companies will need all available internal forecasting capabilities to stress test their capital requirements weekly and monthly.
Relevant data is key to making good decisions when a supply chain breaks down. In times of crisis, manual data management is neither fast nor flexible. So how do businesses obtain this data?
By using a strategy backed by decades of professional experience. That’s where Propeller comes in. We help brands navigate this challenging time with teams and technology to help.
If your company needs assistance with inventory management systems, our SysOps team can support you. The SysOps team brings deep knowledge of the Inventory Management Systems (IMS) space to help you evaluate, select, and implement the optimal system for your business’s needs. We collaborate with your operations and accounting teams to ensure the IMS is properly maintained to provide valuable insights that support data-driven decisions.
Above all else, coordination, cooperation, and communication are critical to avoid supply chain disruptions. Effective management of your supply chain provides several opportunities for your company to improve your profit margins and retain customers, but coordination and cooperation with all contributors to your supply chain are critical.
When your supply chain is operating undisrupted, it’s easy to take it for granted. However, in times of trouble, having a good long-term plan in place (or creating a strong crisis management strategy in the moment) is essential. Know this: your suppliers are ready (and in many cases eager) for change with you—this is a margin-increasing opportunity for them, too.
Supply disruptions are inevitable, but by planning your response carefully, evaluating potential supply chain risks, and diversifying your suppliers, you can help prepare for even the most unprecedented of circumstances.