What does supply chain disruption mean, and why should small businesses care?
In simple terms, it’s the unexpected hiccups in the flow of goods – from raw materials to finished products reaching your customers.
For small businesses, especially those in manufacturing, these disruptions aren’t just inconveniences; they can be major stumbling blocks, impacting everything from cash flow to customer satisfaction.
Supply Chain Disruption Impact on Small Businesses: More Than Just a Delay
Supply chain disruptions can hit small businesses hard.
They often lead to cash flow crunches, as delayed shipments mean delayed payments. Inventory shortages can follow, disrupting production schedules and leading to missed sales opportunities.
The ripple effect continues with increased operational costs, as small businesses scramble to find quick – often more expensive – solutions. It’s a tough cycle, but resilience and adaptability are key.
But how do these disruptions come about?
2024’s Disruption Drivers: A Global and Local View
In 2024, supply chain disruptions are expected to be influenced by a variety of global factors.
Extreme weather events, such as heavy rains, flooding, and wildfires, are identified as the top risk facing supply chains, with a 100% risk score attached to the possibility of extreme weather causing disruptions.
Additionally, risks such as geopolitical tensions, war and recession continue to linger, with the effects of the pandemic when supply chains crumbled also still playing a role.
Industry-specific challenges can come into play, for example in agriculture or textile manufacturing, where specific materials or conditions are critical.
There are also internal factors at play. Analysts suggest that small businesses with outdated digital infrastructure or inefficient inventory management are at risk of struggling with their supply management, and using outdated digital infrastructure to manage customers and inventory can lead to cybersecurity risks, which can cause reputational damage, lost customers, and reduced profits.
Mitigating Risks: Diversify, Digitize, and Develop Relationships
In short – don’t put all your eggs in one basket.
Diversifying suppliers is crucial. This means evaluating your current supply chain, pinpointing vulnerabilities, identifying risks, and setting clear goals for diversification to reduce dependence on single suppliers and logistics providers.
2023 was a big year for AI. In 2024, embracing technology, like AI and predictive analytics, can be a game-changer, offering foresight in turbulent times. With real-time data analysis, small businesses can make data-backed decisions early in the shipping process when mitigation efforts have the most significant impact.
And never underestimate the power of strong relationships with suppliers; these can lead to better communication and reliability, as well as savings on cost thanks to potentially better pricing and discounts.
Inventory Management: Keep It Agile
In the face of supply chain unpredictability, the debate of ‘Just-in-Time’ (JIT) vs. ‘Just-in-Case’ (JIC) inventory models is more relevant than ever.
What do these models mean?
JIT means that the business only orders or produces products when they are needed, so they don’t have to store a lot of extra inventory. JIC means that the business keeps extra products in stock, just in case they need them.
As many of us remember, during the COVID-19 pandemic, small businesses (including dropshipping businesses) found that JIT didn’t work well because it relied too much on suppliers and couldn’t handle sudden changes in demand. JIC, while costly, helped businesses be more prepared for unexpected events.
This is why for many, a balanced approach might work best. Instead of relying solely on either keeping minimal inventory (JIT) or having a lot of extra stock (JIC), small businesses can benefit from finding a middle way that allows them to be efficient while also being prepared for unexpected events by having some safety stock.
Of course, inventory levels can be complicated to manage without proper technology in place. Using manufacturing resource planning or inventory management software can help maintain optimal inventory levels, reduce waste, and save costs.
Local and Alternative Supply Chains
Exploring local suppliers can be a smart move, reducing dependence on unpredictable global chains. This approach can also contribute to sustainability and support circular economy.
How do you do that? Here are some ideas:
- Identify local suppliers who can provide the necessary materials or products via online research, industry networks, or by attending local trade shows and events.
- Evaluate the capabilities of potential local suppliers to make sure they can meet your small business’s requirements. Visit their business, talk to them directly about their production processes, and based on that, assess if they’re a good fit.
- Initiate contact and build relationships with local suppliers. This means open communication, discussing long-term partnership opportunities, and understanding each other’s business operations.
- Once you identify a suitable local supplier, negotiate mutually beneficial terms around pricing and delivery schedules.
- Consider piloting some local suppliers for a specific product or time period to assess their performance and whether it works with what you need.
Don’t overlook alternative supply chains, like community-based networks, which can offer unique benefits. For example, community-supported farms allow customers to become supporters by signing up for weekly shares for the entire season and also tackle the problem of having long international supply chains.
Building a Contingency Plan for Your Supply Chain
Preparation is key. Ideally, you should develop a contingency plan that includes financial safety nets, emergency contacts, and backup suppliers.
The plan doesn’t need to be elaborate, but here are some things worth thinking about:
- Making a list of potential risks that could disrupt your business, such as natural disasters, supplier issues, or economic downturns.
- Setting aside emergency funds to cover essential expenses in case of a disruption.
- Maintaining a list of key contacts, including employees, suppliers, and service providers to turn to in case of an emergency.
- Looking into relationships with alternative suppliers to ensure a secondary source of essential materials or products.
A well-thought-out plan can be the difference between weathering the storm and being swept away by it.
The challenges of supply chain disruptions for small businesses are real, but they’re not insurmountable.
By assessing your current strategies and considering new approaches – from diversifying suppliers to leveraging technology and building stronger relationships – you can build a more resilient, adaptive business.
The future may be uncertain, but with the right preparation, small businesses can not only survive but thrive in 2024 and beyond.
Mike Lurye is the Director of Business Development at MRPeasy.