At a Glance
The COVID-19 pandemic, geopolitical conflicts like the Ukraine war, and economic uncertainty have severely impacted small businesses worldwide, especially concerning supply chain disruptions. These events have led to a domino effect that has disrupted the global supply chain network, creating a severe shortage of critical components, raw materials, and finished goods.
As disruptions in the supply chain can lead to a halt in production, delayed delivery, and increased costs, learning how to protect your business against these disruptions will help you stay resilient when challenges arise.
Events that Caused Recent Supply Chain Disruptions
Several events have impacted supply chains for small businesses in the last few years. The U.S. Chamber of Commerce reports that 61% of small businesses experienced supply chain disruption during the pandemic and ensuing worker shortages. 63% had to alter their supply chain resources in 2022, and 47% said disruptions have made it hard to keep up with customer demand.
Manufacturing Firm Lockdowns
COVID-19 lockdowns and climate effects, particularly in China, caused several manufacturing firms to halt production or operate at limited capacity, leading to shortages in critical components and raw materials.
Increased Demand for Electronics Due to Remote Work
The rise of remote work has caused an increased demand for electronics, such as laptops, webcams, and headphones. This surge in demand has led to shortages and increased costs for these products and materials used to make them, such as metal, silicon, and plastics.
Lean Manufacturing Model
The lean manufacturing model, which aims to minimize waste and reduce inventory, has contributed to supply chain disruptions by relying on a “just-in-time” delivery system, meaning components and raw materials are delivered precisely when needed. However, when there is a disruption in the supply chain, this model can lead to delays in production and delivery.
America’s Ports are Jammed
Port congestion also contributed to supply chain disruptions in 2022. The pandemic caused a surge in e-commerce, leading to a backlog of ships waiting to dock at American ports. This backlog resulted in delays in delivering goods and increased transportation costs.
Labor Shortages Contributing to Bottlenecks
Labor shortages have contributed to supply chain disruptions in several ways. The U.S. Chamber of Commerce reports that in February of 2023, three million fewer workers were available than in 2020, resulting in a lack of integral workers, such as truck drivers. Without drivers to transport goods, deliveries were severely delayed. Additionally, the shortage of workers in manufacturing plants and warehouses lead to a slowdown in production.
How to Combat Supply Chain Issues
Small businesses must adopt new strategies and best practices to combat supply chain issues. Some ways that small businesses can handle supply chain disruptions include:
Risk Management Planning
Small businesses should have a risk management plan to prepare for potential supply chain disruptions, including a strategy for identifying potential risks, assessing the impact of these risks, and developing contingency plans.
A contingency plan should incorporate methods for finding alternative suppliers, increasing safety stock levels, and cross-training employees to cover key roles. Plans should be regularly reviewed and updated to ensure the business is well-prepared to manage unforeseen disruptions.
Small businesses can automate their supply chain management processes, such as order placement, inventory management, and shipping, to streamline operations, reduce errors, and increase efficiency. Automation can help reduce lead times, improve forecasting accuracy, and improve supply chain visibility.
Technology such as sensors and tracking software allows businesses to gather real-time data on inventory levels, shipping times, and delivery schedules. This information can be used to identify potential bottlenecks in the supply chain and develop contingency plans.
Small businesses can also leverage data analytics to make informed decisions and forecast future demand, reducing the risk of overstocking or understocking.
Understanding Customer Demand and Expectations
Small businesses must understand their customers’ demands and expectations to ensure they have the right products at the right time. This includes analyzing sales data, conducting market research, and engaging customers to get feedback.
Analyzing customer data allows small businesses to anticipate changes in demand and adjust their inventory accordingly, reducing the risk of disruptions. Additionally, understanding customer expectations can inform decisions on shipping methods and delivery times, enhancing customer satisfaction.
Review productivity levels regularly to identify any inefficiencies in the supply chain, including analyzing workflow, identifying bottlenecks, and optimizing operations. Working with an accounting firm like Windes can help track sales and inventory with software like Jirav to ensure you focus your efforts on your most profitable goods.
Diversify Your Vendors
Small businesses also need to diversify vendors to mitigate the impact of supplier bankruptcies, natural disasters, or geopolitical events which can disrupt the supply chain. Identify alternative suppliers by developing relationships with multiple vendors.
Partner with other Small Businesses
Small businesses can collaborate with other small businesses to share their supply chain network, reducing costs, increasing efficiency, and creating a more resilient supply chain. For example, you can partner with other businesses in your industry specializing in a different niche market to offer discounted supplies and ways to distribute materials and supplies more effectively.
Conduct a Supply Chain Vulnerability Audit
Conducting a supply chain vulnerability audit can identify potential weaknesses in the supply chain and assess the risk and impact of disruptions. The audit can include evaluating the supplier network, inventory management practices, and logistics processes. Based on the findings, businesses can develop contingency plans, such as safety stock levels, alternative suppliers, and backup logistics routes.
Lose the Just-in-Time Mindset
Small businesses should move away from the “just-in-time” mindset and build more flexibility into their supply chain, including holding buffer inventory. Strategies like this can combat inflation to help your business succeed long term.
Embracing Resilience and Flexibility in Supply Chain Management
In times of economic uncertainty and global disruption, small businesses must proactively manage their supply chain to ensure operational continuity. Windes outsourced accounting services can provide valuable insight and drive actions that significantly impact your organization’s profitability, enabling your business to weather any supply chain disruptions.
By embracing resilience and flexibility in supply chain management, small businesses can mitigate risks, optimize operations, and build a more robust and sustainable supply chain. With the right strategies, tools, and partners, small businesses can emerge stronger and more competitive in a challenging business environment. Connect with Windes Outsource Accounting Team today to learn how we can help.