How Small Businesses Can Manage Supply Chain Disruptions
Challenges abound, but interruptions may present openings
COVID-19 has had a disruptive effect on the global supply chain, and small businesses are not immune. An average of more than 30% of American small business owners across sectors still reported a disruption to their supply chain in June 2020 data, months into the pandemic. Supply-chain disruptions can affect small businesses in many ways: They can reduce revenue, inflate costs, cut into market share, or cause issues with production—all of which can damage a company’s bottom line.
According to Rich Weissman, a part-time professor of business at Endicott College specializing in supply chain and operations management, small businesses can be at a distinct disadvantage when it comes to supply chain management during times of increased risk.
“In times of supply chain constraints and increased risk, the bigger companies seem to get preferential treatment,” Weissman said in an email interview.
Still, there are a number of measures that small businesses can take to mitigate supply chain disruptions, whether due to a pandemic or any number of other factors.
Consider Pivoting from China
“COVID-19 has exposed the vulnerabilities of complex global supply chains,” said Loretta L. Worters, vice president of media relations for the Insurance Information Institute. “When Chinese factories closed, manufacturers didn’t have other suppliers to rely on.”
One option for small businesses is to rethink the sources of their products going forward.
Instead of relying only on China, they might examine manufacturing hubs like Vietnam and Mexico, as well as the possibility of doing some manufacturing domestically, which could help to mitigate risk.
Worters recommends that businesses leverage technology to identify and recruit new suppliers. “With AI (artificial intelligence), small businesses can quickly pivot to alternative providers when regular suppliers face disruption,” she said.
Evaluate Your Existing Suppliers
Most suppliers will want to keep your business as long as possible, even if short-term issues arise with their deliveries.Begin by communicating with your existing direct suppliers to understand what the delays will be, what your options are and what the true lead time for your supplies will be. Work with key suppliers to get a clear sense of their inventory, production, and purchase-order fulfillment status—as well as a grasp on how you, as a smaller business, will be treated in the event of shortages at the supplier. Active communication is key to leveraging your existing relationships.
Expect that there will be some delays, but know when to begin seeking new sources or workarounds.
“When a supplier tells me to ‘be patient,’ I look at that as a signal to begin damage control and find other sources of supply or look to alternative products or services,” Weissman noted.
Identify Backup Suppliers, Vendors
Relying on a single supplier is another downfall for many small businesses. Identifying potential backup suppliers and vendors is key to managing a supply chain in a time of disruption. While relationships with existing suppliers are important and should be turned to first, they aren’t the only option.
If the relationship with your current supplier isn’t working, a disruption is a good time to seek out other sources who are actively searching for new business and may jump at a chance to work with you.
“This is an opportunity to stretch your sourcing strategies a bit,” said Weissman. “I have found very good new sources of supply when an existing source couldn’t deliver. While I am a fan of relationships, I think we have become too dependent on them.”
Communicate with Your Customers
For many small businesses, a supply chain disruption is inevitable at some point, and it will affect the offerings you can provide. In that case, your next line of defense is clear communication with customers.
Be honest with customers about supply issues that the business is facing and establish a clear timeline, when you can.
Understand that the information about delays that you can provide to your customers is only as good as what your provider is telling you; you must trust the source. Transparency with your customers is key to ensuring that they continue ordering and have repeat business with you. Ensure that the customer feels you’re being upfront about the reasons for delay, and consider whether offering compensation for any inconvenience is appropriate.
Have Long-Term Plan for Your Pivot
Many small businesses have taken necessary steps to recover revenue during the pandemic. For example, restaurants are offering grocery items or fruit and vegetable boxes to supplement takeout, leveraging their restaurant supply chain to provide new offerings. Weissman believes that, for the most part, these are only marginal steps that will help a business through an economically difficult time. Consider whether switching to offering another product is a short-term stopgap or a long-term solution.
And there will be long-term consumer behavior changes because of the pandemic. What may be a great market for a product or service during the crisis may weaken as life progresses beyond COVID-19. At the same time, other opportunities may arise; small businesses need to be aware of their long-term potential, not just responsive to pandemic-related activities, Weissman advised.
Take Advantage of Big-Player Delays
For e-commerce companies in particular, shipping delays from giants like Amazon may open an opportunity for smaller businesses that can fulfill orders more quickly or effectively. Local businesses can create or bolster their online presence, and small e-commerce companies can take advantage of shipping delays at Amazon and other large retailers to offer attractive options for customers to get the items they need more quickly.
It may be too late at this point for businesses being affected by current supply chain disruptions to insure against them, but business income interruption insurance is always an option for companies concerned with future supply chain upset.
“It depends on the location and the insurer, but most likely insurers would be hesitant to insure for pandemics,” Worters added.
Still, depending on the insurance product selected, a company could have coverage on non-physical damage to its supply chain like strike, regulatory action, political risk, or other significant delays in shipping caused by events like an earthquake, hurricane, flood, or volcanic eruption.