Navigating Supply Chain Disruption: 7 Strategies for Small Businesses

Karen Burns is an assurance partner with Sensiba San Filippo , a leading regional CPA and business advisory firm. Karen has more than 30 years of experience providing financial and business consulting services to companies in a variety of industries, with a particular passion for the manufacturing, distribution and construction sectors. She has great depth of experience working with rapidly growing companies, from startups to multigenerational family businesses. She is sought after nationally for her expertise in manufacturing and is frequently leveraged by media for content and perspective on industry trends and best practices. She has been interviewed by such media sources as Marketwatch, Bloomberg BusinessWeek, San Francisco Business Times, San Jose Mercury News, and Manufacturing Digital.

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According to the weekly pulse data collected by the U.S. Census Bureau Small Business Pulse Survey, domestic supplier delays were reported by 46% of small businesses at the end of November, up from 27% reported a year ago.  Further, those reporting the challenge to find alternate domestic suppliers more than doubled from 11% to 23%. Wherever your business sits on the spectrum, you’ll want to follow these tips to navigate supply chain disruption.

So, how did we get here?

To answer that question, we must first ask: “What do a freeze in Texas last February, an active hurricane season along the Gulf Coast, and a warming trend in Canada over the last decade have in common?” They all impact the current supply chain debacle. These natural disasters directly impacted the production of plastics materials and resins that are used in the health care industry (think face shields and sharps containers), manufacturing industry (especially automotive and technology) and the construction industry (PVC in particular).

The heat and drought conditions in Canada have had a significant impact on the shipping industry. Pallets, the base upon which most cargo is shipped, are most commonly made of pine. Canada’s warming trend has weakened pine trees, making them more susceptible to attack by beetles. Those same beetles benefit from the warming trend by reproducing rapidly due to the lack of freezing temperatures, which typically kills them off. The effect has been a nearly 50% reduction in pine trees over the past decade. Of course, plastic pallets might be an alternative, which leads us full circle to the plastic shortage discussed above.

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Supply chain vulnerabilities were increasingly exposed in the wake of the COVID-19 pandemic as well. Plant outbreaks caused shutdowns and those that remained open had to contend with how to produce goods while maintaining social distancing. Labor shortages occurred due to school and day care closures, causing parents to stay home or risk infecting an elder grandparent. Nearly every small business owner was forced to question their stability and future resilience.

So, how can one navigate the disruptions and mitigate the risks?

Fortunately, there are steps that can be taken – some immediate while others are more long range – to  help with the direct and indirect impacts to your organization.  Check out these top seven recommendations:

Find suppliers nearby.

Reduce your dependency on foreign markets and delayed deliveries by sourcing suppliers near you. This way, you’ll be able to manage days on hand through smaller buys. Another advantage is that smaller, local suppliers may be more willing to negotiate extended terms if you’re a big fish in their pond.

Reduce dependence on single suppliers.

Any parts sourced by single suppliers leave you vulnerable to issues they face. Have you assessed the risks to which your suppliers are exposed and whether that will affect their ability to respond timely? How about your supplier’s suppliers? Consider building relationships with alternate suppliers who may be available when the need arises, potentially at more competitive pricing.

Plan for increased shipping cost.

Prices for freight and logistics have skyrocketed. Assuming you can work with suppliers to procure materials, getting them in time to manufacture your product on a timely basis is another thing altogether.  Small businesses don’t have the leverage to get priority in the supply chain competition and are consistently being pushed to the back of the line. While big-box retailers can lease entire ships, most small businesses cannot. They can, however, and will need to, buy in larger quantities than ever before and plan to pay expedited shipping fees.

Collaborate to negotiate additional space.

Those fortunate enough to bulk up on inventory will have to find a place to store it. Competition for warehouse space is fierce, especially when your company may only need it short term. Consider partnering with other small businesses to co-lease the space in order to compete with businesses who are willing to take on more square feet.

Invest in materials requirement planning (MRP).

Chances are, if you’ve seen much growth in the past few years, you may have outgrown your current system and it may be time to look at that software implementation you’ve been avoiding. Having the tools to work with your customers to plan for demand is key to ensuring appropriate “safety stock numbers” to optimize inventory. It will also ensure you’ll have a better chance at getting your hands on the materials when needed.

Work with community resources and local workforce boards.

Often the labor component of supply chain is overlooked. By far the biggest need out there in the next six months, according to the aforementioned U.S. Census Bureau survey, is identifying and hiring new employees. This was reported as an issue by more than 41% of respondents. Fortunately, there are many great programs out there to help. First, look to local training programs at community colleges and veterans’ organizations. Most will be more than happy to partner with you – they train ’em, you hire ’em.  Additionally, many states have regional workforce development boards that will assist you in finding such training programs and future workers.

Use your size to your advantage – stay nimble.

While some of the recommendations here may seem more applicable to larger companies, they often struggle to manage their cash flow because of the sheer volume of daily transactions and the bureaucracy associated with layers of management. Strategic mid-market companies will model the cause and effect of potential change and then be nimble enough to execute at a moment’s notice to take advantage of the opportunities.

While you may feel at the mercy of what is happening around you, never forget the famous quote by Margaret Mead, anthropologist: “Never doubt that a small group of thoughtful, committed citizens can change the world: indeed, it’s the only thing that ever has.” Take control of what you can, plan for the rest. You got this!

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Originally published Dec. 13, 2021.