Supply chain disruptions can impact small businesses in significant ways. Read tips for protecting your business and maintaining your customer relationships in the face of ongoing supply chain challenges.
Small business owners have faced many challenges over the course of the past few years as they guided their businesses through a pandemic and worked to position themselves for future success. But the health of global supply chains has emerged in recent months as a particularly prominent issue that threatens to derail the small business recovery moving into the new year.
Unprecedented disruptions to supply chains have limited the availability of consumer goods and created critical delays and backlogs for many businesses seeking to capitalize on increased consumer demand. And while the health of the global supply chain is top of mind for businesses of all sizes, the ongoing delays present distinct difficulties for small businesses.
Read about the factors impacting the health of your supply chain and discover strategies your business can use to overcome the current bottlenecks.
What’s causing the supply chain disruptions and how do they impact small businesses?
Current supply chain disruptions are largely a product of global pandemic-related developments. Shifts in demand resulting from COVID-19 led manufacturers and suppliers to reduce the amount they produce, creating a backlog in orders as economies rebounded and consumer demand picked back up. At the same time, employees across the world have yet to return to work at pre-pandemic rates, causing widespread staff shortages and compounding the existing challenges.
All of these factors combine to create new pain points that you may not be able to control. The impact of supply chain disruptions for your business can include increased wait times for shipments, delays in your assembly line production while you await the arrival of key materials, and an inability to provide certain products for your customers. Additionally, shortages resulting from supply chain interruptions, along with increased demand, have contributed to inflation. The more inflation rises, the more it cuts into margins and for small businesses that rely on cheap prices to beat the competition, passing rising costs onto the consumer isn’t always an option.
As a small business owner facing these challenges, you may not be able to use the tactics of larger corporations and pressure suppliers during this supply chain crunch. But you do have plenty of tools at your disposal to circumvent supply chain obstacles. It requires planning and a mindset that embraces flexibility. Here are the key strategies that small businesses owners can use to manage their supply chains and find business success.
Build in backup plans.
Small businesses that survived the pandemic likely became familiar with the benefits of contingency planning for managing unexpected disasters. But it can also be valuable when dealing with your supply chain. By considering alternative strategies for your business, you can build in a safety net and protect yourself and your cash flow if you suddenly find that a supplier can’t provide you with the on-time delivery you need. Here are four steps you can take to create an effective contingency plan
- Map out your supply chain – You can’t know where things might go wrong unless you understand the entire supply chain, including who your suppliers are, where they are located, and how they transport their goods to your business. Many organizations are utilizing digital tools to help track every piece of the manufacturing process. This provides the detailed insight that you need to plan for emerging risks.
- Assess where the risks lie – Consider what could delay the delivery or production of your goods based on where your suppliers are located. Potential risks could include natural events, like earthquakes or hurricanes, as well as geopolitical developments in your suppliers’ countries and regions.
- Know your suppliers’ contingency plans – Ask suppliers what their plan of action will be and what backup plans they have in place to manage the current supply chain concerns.
- Find backup suppliers and transportation – Find and integrate backup suppliers into your business planning so that you can be prepared if something goes wrong with one of your main providers. This will prevent one isolated event from slowing down your business. Do the same with your shipping methods in case your usual mode of transportation becomes unavailable or too expensive.
Talk with suppliers.
The better relationship you have with your suppliers, the more options you will have when times are tight. Talking with trusted suppliers will provide you with insight into their primary pain points and the potential impact they may have on your business.
Suppliers will talk with you bluntly about what your business can expect and when your deliveries will arrive. If the timing doesn’t work for your business, talk to them about incorporating contingency plans to mitigate the effects of the slowdown. For example, your suppliers may have partners that can take on a portion of their deliveries when they’re stretched too thin. Your suppliers may also have creative options that you never even considered. Working with suppliers to understand all the available alternatives will help you plan.
Improve working capital.
The working capital cycle refers to how long it takes your business to begin the manufacturing process, receive supplies, stock store shelves with your goods, sell the product, receive payment, and then pay suppliers. The longer this cycle stretches on, the longer it takes for partners to get paid.
In a supply chain crunch, having control over this cycle allows you to reduce the time it takes for your suppliers to get paid, which can encourage them to move your business to the front of the line.
Suppliers (just like you) want to get paid as quickly as possible. If you demonstrate that you can pay them earlier than other customers, then they’ll prioritize your business.
Shortening the working capital cycle has the added benefit of improving cash flow. This allows you to pivot more quickly to a backup supplier if something goes wrong with one of your primary partners.
Increase customer communication.
When you feel the supply crunch, so do customers; while you may know why your deliveries are delayed, they might not. It is critical that you build customer communication into your business plans. Explain why your prices might rise and why some products are more difficult to find than others. Let them know when they can expect new product deliveries. You can also find creative ways to reward customers for their patience, including discounts or other special offerings.
By communicating frequently with your customers on the state of your supply chain, you will ensure that forces outside of your control do not impact how your customers view your business in the long term.
When it comes to a supply chain crunch, it’s vital that your business avoids surprises. By building in contingency plans, having honest conversations with your suppliers, and improving your working capital, you can mitigate the impact of unexpected disruptions on your business and your customers. The supply chain concerns won’t last forever, but the businesses that take action today to improve their supply chain management will be better prepared to thrive in the face of current and future interruptions.
To discuss additional strategies for achieving your business goals, contact your Senior Relationship Banker or get in touch with Santander Bank today.
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