The Supply Chain Dilemma and What to Do Next

Disruption in the supply chain is nothing new, and you don’t have to look hard to find new data on a daily basis. Overseas manufacturers are still unsettled from the pandemic, ports are full and there are not enough truckers to move the necessary loads of goods. This disruption has affected small businesses particularly hard as they don’t often have the resources to hoard inventory well in advance. And unfortunately, recent trends are suggesting that the supply chain may not return to normal levels until well into next year. Like many disruptions we have seen over time, this also creates an opportunity and here are some ways to lay the foundation to do so.

1. Diversify – This is a great opportunity to diversify sources of supply, both suppliers and the geography of suppliers. Having multiple sources of the same product could dampen the blow of availability and potential for pricing shocks. Geographically, companies are for example successfully moving to suppliers in Mexico and Latin America where they once depended solely on China. Even if a new supplier cannot be spun up right away, this practice will help in the short run while also serving a beneficial long-term purpose. Just don’t forget to carefully assess quality control.

2. Down the chain – What is the downstream impact on your suppliers? Do you understand their supply chain? How much “raw” inventory do they carry and how are they managing the disruption? Could one of their suppliers tip the apple cart? Have these conversations if you are not doing so already.

3. Plan for It – It is a great idea to reforecast throughout the year, and we are not too far off from annual planning season for most businesses. Be conservative and budget for higher costs. What does this picture look like? It may well be a reality for the foreseeable future, but regardless it is a very valuable planning exercise. What impacts would alter decision making?

4. Pricing – How much price control do you have with your customers? Many companies have raised prices already, just following the inflationary wave. Perhaps this is limited by larger competitors or by the market however, or it will only apply to a subset of products. Understand the levers you can pull and where the ceilings are so options can be thoroughly evaluated.

5. Alternatives – This has also been a window of time where companies are re-examining what they make and how it is sold. Does product mix need to shift due to supply issues? Is this the right time to consider a product redesign or tweak, or one step further to create more in house? Disruptions create great opportunities to pause and explore alternative solutions that might not have been needed or even possible in more normal cycles.

6. Pull Back – Does it make sense to operate at lower sales levels for a period of time? Labor is tight, maybe that extra shift does not make as much sense. Could marketing spends be pared back? A good profit level may still be attainable. This is not a one-size fits all solution, but for some companies, a shrunken but stable version may be the best way to ride out the disruption and be positioned for success in the future. The key here again is to understand the what if’s and make decisions accordingly.

The supply chain disruption is real and likely not subsiding any time soon. There are steps that businesses can take. This is a time for nimble decision making, exploring creative options and looking ahead. The competition could already be doing so. Disruption can be your friend or your enemy. The choice is yours.

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