Five Tips for Businesses to Navigate the Supply Chain Crisis

November 18, 2021

At this point, it is impossible to escape hearing about or experiencing the supply chain crisis grabbing headlines and impacting businesses – and families – across the globe. This issue has attracted the attention of the single consumer clear up to the Biden administration. Supply chain problems quickly became an inconvenient reality for holiday shoppers looking to secure gifts in time for the holidays. This same demand for furniture, electronics, toys and clothing is pushing inflation to its highest levels in three decades.

What is Causing the Supply Chain Crisis?

Supply chain issues start at the ports, but don’t end there. Not only is there massive congestion at U.S. ports, but a shortage of truck drivers exacerbates the problem. This has halted the complete flow of goods in some cases. Cargo ships now take weeks, rather than days, to unload at the ports, and backed-up shippers are so desperate to return to Asia to pick up more goods that they often leave the United States with empty containers.

At root, U.S. consumers are buying too much stuff too quickly. When the pandemic began, and Americans found themselves unable to go out, households suddenly shifted their spending focus from experiences and services to tangible goods. Stimulus checks helped fuel this shopping frenzy as many citizens lucky enough to keep their jobs, but below income limits, splurged on things like TVs and cars. Economists widely expected that as the pandemic faded, Americans would revert back to their previous spending patterns, but that has yet to happen.

5 Steps Businesses Should Take to Navigate Supply Chain Issues

These issues have spread beyond tangible goods and now affect industrial staples such as steel and lumber. Over the next year, businesses must focus on navigating these unpredictable supply chain issues.

Companies looking to insure against these issues should consider the following:

1.      Invest in your business’s infrastructure

Invest in technology that can provide real-time, detailed visibility into inventory control and supply chain management, including inventory levels, stock on order and supplier on-time performance. For example, blockchain technology can overhaul a business’s enterprise resource planning. With blockchain, warehouse inventory management can forecast demand accurately and thereby always have the right type and quantity of stock needed to meet expected demand. The technology makes it possible to optimize revenue and profitability while reducing the risk of lost sales. Having real-time updates for this information will help you avoid volatility in your supply chain. Investing in your inventory management will save losses in the long run.

2.      Increase your partnerships and suppliers

This option seems like a no-brainer, but many companies avoid expansion until its critical – and at that point, it may be too late. Expand your partnership and suppliers, so you increase your options if supply chain issues arise within your company.

3.      Have a plan for disruption

Even if you have done everything you can to avoid it, still expect disruption and plan for it. Hope for the best but always plan for the worst, and you will undoubtedly be miles ahead of the competition. Too many companies face issues once they arrive and lose precious reaction time because they failed to preemptively plan for the disruption. Consider making a supply chain matrix that includes both potential disruptions and a multitude of solutions.

4.      Cash is King: Manage your cash flow

Good cash management can set your company up for success and an advantage in the market.  Successful businesses scrutinize their cash conversion cycle in advance to effectively assess risks and determine the right inventory investments. Aim to shorten your conversion window to have access to cash for growth. A shorter conversion window will also reduce your risk of liquidation due to cash needs for paying suppliers, employees and creditors.

5.      Analyze your Terms and Conditions and other contracts

Now would be a good time for a thorough review of contractual documents with suppliers, partners, etc. Know your terms and obligations before there is a problem. Start with a substantive review of your company’s contractual documents as they relate to warranties and production timelines. Focus on a detailed review of your potential for penalties, extensions and additional options. Second, review your contracts with suppliers to understand your possible enforcement mechanisms, penalties and recourse options.

At this point, no one can seemingly predict the market, let alone control it. This can leave you feeling uneasy about the future of your business, but proper planning offers some security from the current supply chain issues.

If you have questions or need help navigating the steps above, please reach out to Scott Norcross (san@kjk.com; 216.736.7264) or Paige Rabatin (pmr@kjk.com; 216.736.7270).

See also: Supply Chain Security: Is Your Business Vulnerable to Cyber Attacks in Your Supply Chain?