Supply Chain Disruptions and Challenges for Small Businesses

The optimism of U.S. small business owners took a hit in September 2021 due to factors caused by the COVID-19 pandemic, such as labor shortages and supply chain disruptions. In fact, Forbes reports that over 30% of small businesses reported that supply chain disruptions have had a significant impact on their business since the pandemic. Another third reported a moderate impact.

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Over half reported that the impacts of these disruptions are worse than three months ago, with only 6% seeing an improvement. As the economy re-opens and we head into the holiday season, your supply chain may be impacted. Here’s more information and strategies to help you manage issues.

What and where are supply chain disruptions?

A supply chain is a network of people, organizations, and activities that move a product from a supplier to a final customer. A supply chain disruption is any sudden change or crisis—local or global—that negatively impacts that process. Once shortages start to occur, the importance of the supply chain pipeline comes into focus, like it is in 2021.

Demand drops and surges

Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for those goods or services. An increase in the price of a good or service will decrease the quantity demanded, and vice versa. As the 2021 holiday season approaches, addressing demand surge and adjusting to supply chain issues is key.

4 types of supply chain disruption

All supply chain disruptions are not equal. Here are some types to help shape your response:

  1. Pandemics

There is no surprise that a planet-wide contagious disease impacts global supply chains at every stage. As the 2021 holiday season approaches, it’s vital that small business owners appropriately address shortages and delayed timelines.

  1. Natural disasters

A hurricane, tsunami, blizzard, or any kind of natural disaster can cause supply chain issues that include postponed or paused deliveries, closed ports, canceled cargo flights, and unbalanced supply and demand. Even geographically localized disasters can impact the supply chain.

  1. Transportation failures and delays.

Transportation delays make it more difficult for freight carriers to deliver goods by land, sea, or air. COVID-19 mandates and employee shortages are one factor affecting transportation this year.

  1. Cyber attacks

Cyber attacks can occur to any business, at any time, that  has not adequately protected itself. Your supply chain can also inadvertently open you up to attacks. If any link in your chain has lax security protocols, that may be an opportunity for hackers to get access to your data. Our article, Cybersecurity for Small Business, can help you implement a solid safety policy.

Tactics to manage supply chain disruptions

The best offense is a good defense, and that’s certainly true when it comes to managing your supply chains. You probably won’t get much advance notice about disruptions to your supply chain, so it’s a good idea to plan for any eventuality. Here are a few things to consider while creating a strategy for managing supply chain disruptions.

Create a supply chain emergency plan

Don’t get caught flat footed when supply chain issues begin. Create a handbook and share with employees that outlines how your business will respond to specific problems.

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Use demand planning to improve efficiency

Demand planning is a process that helps businesses meet customer demand for products while minimizing excess inventory and avoiding supply chain disruptions. In demand planning, business owners use historical data to forecast potential demand in the future. For example, if you know that knitted beanies sell best in September then you can use demand planning and work with your supply chain partners to ensure that you can meet that September demand. This year it might be a good strategy to work with your accountant or another financial professional to help you crunch the numbers.

Identify backup suppliers

Having a backup supplier in place helps you get product out on time and with minimal disruptions caused by unexpected supply chain disruptions. When considering a potential backup supplier, determine if they can perform the same as your primary company. Make sure the backup supplier is available to step in at the last minute. When vetting suppliers, it’s a best practice to ask other small businesses in your industry for suggestions.

Use supply chain software

Supply-chain-management software (SCMS) are software tools used to execute supply chain transactions, manage supplier relationships, and control associated business processes. Visit Capterra® to research SCMS. You’ll learn product details, costs, and have access to reviews by real small business customers.

Communicate clearly with vendors 

Suppliers are your friends and may be one of the most important components of your operations. Supply chains become streamlined or stagnant based on the relationships you develop with your vendors. With the supply chain issues this year, it’s more important than ever to have communication strategies in place.  Keep the golden rule in mind, to treat others the way you want to be treated. From there, be prepared and knowledgeable. When you know your parts and are consistent in running your business, you create a system of supplier communication that is more manageable and measurable.

Inventory management

Inventory tracking and management is an essential part of business health, and it’s even more important during supply chain breakdowns. An effective inventory management strategy is continuously evolving as manual processes become automated and streamlined. Our blog post has information about systems and strategies to effectively manage your inventory: Inventory Management for Small Business Explained.

Stock up on inventory

A strategy known as just-in-time inventory management is when a business keeps just enough product just in time for customers to buy it. Keeping as little inventory on hand as possible can reduce waste and cut down on costs.

But this year, many businesses are taking a different approach to inventory and stocking. If you think this is a good strategy, you might need additional funds. Strive to get a low-cost loan with long terms, like an SBA loan, so your cash flow doesn’t take a hit. Our blog post can help you get started: Determining if You Qualify for a Small Business Loan.

In conclusion

Supply chain disruptions and the staffing shortages will impact the holiday season but planning accordingly can put you ahead of the curve. As 2022 approaches, check out the SmartBiz® Small Business Blog for information about staffing, financing, operations, lending, and more.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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