Over the past four years, global supply chains have been pushed to their limits, revealing the weaknesses of a complex system that affects everything from toilet paper to computer chips. These supply chain disruptions impact more than just daily life—they affect local and national economies and businesses of every shape and size.
It used to be simple to order items from across the country or even outsource production to other countries. Due to various factors, we are experiencing limitations in these models. According to a 2022 Council of Economic Advisers report, the current supply chain is brittle and vulnerable to breakdowns in the face of a pandemic, natural disaster, or war.
Finding ways for small business owners to recover from supply chain disruptions will go a long way toward regaining domestic and global trade, improving the customer experience, and enhancing overall business results. Let’s explore what is causing supply chain disruptions and five ways businesses can work to recover from them.
What is Supply Chain Disruption, and What Causes It?
A supply chain is a system of organizations, people, and actions that move products from suppliers to manufacturers to distributors to fabricators to customers. Different products will involve different supply chains. For instance, a smartphone is much more complex than a banana.
Supply chain disruption happens when any organizations, people, or actions in the process are interrupted or interfered with. For example, if a farmer can’t get enough workers to harvest raw materials or a factory can’t get parts to fix its machinery, everything further down the line will be impacted.
So, what causes supply chain disruptions? Supply chains are so complex that any number of things can create problems. Here are some of the leading challenges that businesses have to overcome.
- Natural Disasters: Earthquakes, floods, hurricanes, and fires are natural disasters that have led to supply chain disruptions due to destruction, power outages, and worker emergencies. For example, a Japanese tsunami in 2011 led to temporary factory shutdowns responsible for more than half of the nation’s critical auto parts.
- Cyber Attacks: Technology is now involved in nearly every part of the supply chain, which can make it more efficient but can also increase its vulnerabilities. Hackers who constantly try to steal sensitive data or disrupt the supply chain for ulterior motives can exploit system weaknesses.
- Transportation Delays: Transportation delays can occur due to inclement weather, a lack of qualified workers, and even increased seasonal traffic on the roadways. Holiday shipments are particularly vulnerable to all these factors, even when demand is at its highest.
- Price Fluctuations: Changes in the availability of materials, energy prices, and spikes in demand can impact price fluctuations in manufacturing and transportation, leading to business disruptions and shipment delays.
- Global Pandemics: Few things have caused as much of an impact on the global supply chain as COVID-19. When the crisis first hit, it shut down entire supply chains, some of which have yet to recover. Labor shortages in some industries remain, and cargo ships aren’t back on schedule, creating a ripple effect across the global supply chain.
5 Ways to Recover from Supply Chain Disruptions
Supply chain disruptions have become a cost of doing business, no matter the company’s size. It’s no longer a matter of preparing for the unexpected but rather putting new strategies in place that allow your business to meet ongoing challenges and minimize inevitable disruptions. Below are five ways your small business can continue to recover from supply chain disruptions.
1. Audit Your Supply Chain
It’s tough to improve something without understanding some type of baseline. First, you should thoroughly audit your supply chain to identify the areas with the greatest vulnerabilities. For example, you might run several warehouses and rely on a single transportation company. That part of your supply chain is probably weak because of an over-reliance on a single operator.
When you audit your supply chain, you can rank vulnerabilities in terms of risk and their importance to your business results. You can prioritize which items you wish to address using this information first. Supply chain audits should be an ongoing strategy because circumstances can change quickly with one or more of your business partners.
2. Diversify Suppliers
While building strong relationships with business partners is essential, putting all your business eggs in a single basket is no longer practical. If you want your business to recover effectively from supply chain disruptions, it’s time to diversify your suppliers.
If all your inventory comes from a single supplier, you’ll be stuck when they cannot deliver due to labor issues or other problems further up the supply chain. Establishing relationships with alternative suppliers will ensure you can continue operations when one business partner is limited.
3. Stock Backup Inventory
Just-in-time inventory was the business standard before the COVID-19 pandemic. Now that we know supply chains aren’t nearly as resilient, businesses should consider building a safety net of backup inventory for when a disruption or delay in the supply chain occurs.
Every business must leverage its insights to determine the right amount of backup inventory to keep on hand, which may vary by product and season. Essentially, the strategy is to reserve a specific number of items to prevent stockouts so vital sales and customer trust are not lost.
4. Craft a Contingency Plan
According to Forbes, there’s “no end in sight” for supply chain troubles. Given this, businesses need contingency plans for when (not if) things don’t go according to plan.
Even with COVID-19 concerns abating, volatility has become commonplace due to natural disasters, wars, and ongoing economic uncertainty. A contingency plan should include how you will approach customers about supply chain disruptions and the steps you can take to obtain the products you need efficiently.
When creating a plan, consider these four strategies:
- Prevention — What measures can you take to mitigate the impact of supply chain disruptions before they happen?
- Preparedness — How can you be ready to spring into action as soon as an event takes place?
- Response — What will your particular response be to each type of disruption?
- Recovery — How quickly and efficiently can you resume normal operations?
- Improve Supply Chain Transparency
Supply chain transparency or visibility has been a major issue and will be challenging to resolve. Transparency refers to how accessible and straightforward the organization’s processes in the supply chain are to view and analyze. You might know a bit about your suppliers, but what about their suppliers and distributors?
Leveraging technology like RFID tags, warehouse management systems (WMS), and mobile solutions for warehouses and distribution centers, businesses are now allowing real-time data to flow throughout the supply chain. This data about shipping, receiving, inventory levels, and more can help improve communication and restore resiliency in a weakened system.
COVID-19 alerted businesses to the many weaknesses in the supply chain. As those shortcomings have persisted over the past several years, it’s become clear that companies need to build a more resilient system that will be more efficient and weather future disruptions. These actions will help your small business achieve greater efficiencies, improve visibility throughout the supply chain, deliver a better customer experience, and boost overall business results.
John O’Kelly is the founder and CEO of Newcastle Systems. A pioneer in the mobile-powered industrial carts industry, O’Kelly began Newcastle Systems in 2005. John has grown the company to 40 employees and was recognized as a 2022 Supply Chain Brain Top 100 Supply Chain Partner. To meet growing demand, the company moved from Haverhill to a larger location in Amesbury, MA. The mobile carts are used in manufacturing, retail, and shipping and receiving applications by companies including Walmart, UPS, DHL, Wayfair, Tesla, and Amazon. Newcastle Systems recently released an industry report, Bridging the Gap Between Humans and Automation.
Supply chain disruption stock image by IHX/Shutterstock