Posted by Mary Milorrie Campos
Sep 10, 2021
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Your products are just as good as where your supplies come from. This explains why the supply chain — or the activities linking you, your suppliers, and your customers — are so important. If any of these links get disrupted, your business may suffer from negative consequences. Minimize the risks you can get by knowing how to manage supply chain disruptions.
5 tips to overcome supply chain problems
Maintaining a sustainable supply chain is critical to economic and business growth. But due to the worsening condition of the supply chain globally, businesses find themselves operating in a volatile environment. Prices keep rising, materials become scarce, and the flow of goods takes longer than normal.
But this isn’t a hopeless case. If you act on it quickly, you can still mitigate risks associated with supply chain disruptions.
Here are some of the options to deal with supply chain problems this 2021:
- Working with multiple suppliers
- Build good relationships and maintain open communication with your suppliers
- Localizing your supply chain
- Increasing your liquidity
- Using digital technology in supply chain management
Read on and see if you can apply any of these to your supply chain management strategies.
1. Consider working with multiple suppliers
Working with a single supplier sounds ideal. They can provide you with all materials you need, give you discounts, and you can even save from freight costs. But relying too much on one supplier also makes your business vulnerable. What will you do if they can’t deliver your resources on time? What if they stop operating?
It will be a major blow on your end for sure. Apart from experiencing delays in producing your products, you may also fail to meet your customers’ demands on time.
To prevent this kind of incidence, see if you can get several suppliers on board. If possible, choose suppliers from different geographic locations. This will help you continue your operations even if there are disturbances in the location of one of your suppliers.
See the table below for a quick comparison of single sourcing vs. multi-sourcing.
Table 1. Single sourcing vs. multi-sourcing
|
Single sourcing strategy |
Multi-sourcing strategy |
|
|
Vulnerability |
Single sourcing may lead to lopsided dependency where you rely more on your suppliers than they do on you. |
Less reliance on one supplier guarantees you that even if a supplier runs into difficulties, you can still get the materials you need from other suppliers. |
|
Flexibility |
Single sourcing limits your ability to deal with unexpected events. |
Multi-sourcing gives you more flexibility to cope with unexpected events. |
|
Bottlenecks |
Higher risks of supply chain interruption may occur, resulting in delayed supply deliveries. |
Even if materials are scarce, working with several suppliers helps you meet peak demand. |
|
Competition |
Less to no competition. It can either encourage your suppliers to improve their service or make them complacent. |
Increased competition between suppliers gives you more bargaining power. |
|
Relationship |
Building good business relationships with one supplier is easier compared to multi-sourcing. |
Multi-sourcing can complicate supplier relationships, requiring you to improve your supplier management strategies. |
|
Costs |
Lower costs due to possible discounts and cheaper freight costs. |
Higher costs for negotiating contracts, management, and process execution. |
|
Information sharing |
Simpler and easier compared to multi-sourcing. |
Complex and tricky. |
Having multiple suppliers is more complicated and costlier. But you can always start small, depending on what your budget allows. Working with at least two already helps you mitigate risks in your supply chain and survive in the volatile market.
Read Next: 4 Ways Inventory Management Affects SME Financial Statements
You should also remember that the key to successful supplier relationships is by treating them as true business partners. To build long-term, beneficial relationships, you must also focus on what you can offer to your suppliers and not just on what they can bring to the table.
2. Build good relationships with your suppliers
Supply chain management isn’t just about materials and shipping. A great part of it involves people.
Building positive relationships and maintaining open communication with your suppliers allows you to deal with supply chain bottlenecks before they escalate.
Industry Week, an American Trade publication, offers 10 insightful strategies in managing suppliers, which includes:
- Understanding the cost and value of your entire supply chain.
- Realizing that supplier management requires real partnership.
- Accepting accountability.
- Defining service levels and metrics into agreements.
- Working with suppliers to align incentives and penalties.
- Sharing critical information early and maintaining constant communication.
- Planning for emergencies.
- Planning for possible disruptive events.
- Promoting trust.
- Making relationship meetings more meaningful.
You can access the full article here: 10 Strategies for Managing Suppliers.
3. Source from local suppliers
Procuring your materials overseas is generally cheaper than sourcing them from your home country. It also provides you with limitless options and the ability to obtain materials that are unavailable in your domestic market.
In case your raw materials are unavailable in your home country, proceed to tip #4.
But right now, the global supply chain is still in a mess, and it keeps getting worse.
If the current events in the global market affect your business and cause delays in your production, see if you can work with local suppliers.
Localizing the supply chain, according to a professor from the International Institute for Management Development (IMD), “will ensure less disruption in case of limited movement of people and goods.”
This strategy is especially helpful during the pandemic and while international freight costs are still at an all-time high.
Of course, sourcing from local suppliers can either be a temporary or a permanent fix, depending on how this partnership would turn out for your business.
4. Increase your liquidity
Your liquid assets let you protect your business during difficult times. With flexible access to capital, you have the option to stock up on essential items and pay for the increasing costs of freight forwarding.
To increase your liquidity, it’s crucial to determine possible ways to obtain cash whenever you run out of it. Consider the following options:
- Delay certain tax payments. The Internal Revenue Service (IRS) offers tax credits and deferrals to eligible U.S. businesses. If you’re qualified for any of these tax reliefs, you may be able to temporarily shift your tax budget to your supply chain.
- Explore long-term financing options. Long-term financing can help you better manage financial risks. It’s usually in the form of bank loans, bonds, and leasing.
- Manage your receivables and payables better. A long-term strategy to increase your company’s liquidity ratio is by managing your receivables and payables better. For receivables, make sure to invoice your customers ASAP and see to it that they’re paying on time. For your payables, seek ways to do the opposite. To improve your liquidity, it’s better to have longer pay cycles, such as the one offered by long-term financing.
5. Use technology in managing your supply chain
Using supply chain management (SCM) software gives you real-time visibility on what’s going on with your supply chain process. It provides you insights on basic yet crucial data such as lead times or minimum stock levels. This can also guide you in identifying areas where you need to reduce costs, optimize efficiencies, remove risks, and determine vendors who are affected by certain disruptions.
However, not all tools are created equal.
To maximize its potential, you must choose SCM software that you can customize and adjust based on your needs. When shopping around, ask SCM vendors about what their systems are capable of and how they can serve your business. Doing so gives you a guarantee of improving your supply chain processes.
What are the supply chain problems this 2021?
The chaos in the supply chain started way before the pandemic. In mid-2018, the U.S.-China Trade War happened. While it’s meant to make American companies and employees more competitive, the trade war between the two powerful countries only made the situation worse. Lay-offs happened, investments froze, farmers went bankrupt, and the economy deteriorated.
Then the pandemic came next, creating demand and supply shocks across industry verticals. One disruption led to another. And now, we are facing tumultuous logistical situations. Among the problems within the global supply chain, according to Forbes, are the massive dislocations in the container market, shipping routes, air cargo, trucking lines, ports, railways, and warehouses. These disturbances resulted in “shortages of key manufacturing components, order backlogs, delivery delays, and a spike in transportation costs and consumer prices.”
Related: 5 Common Small Business Pain Points and How to Overcome Them
Right now, 30% of small businesses reported that supply chain disruptions left a significant impact on their businesses. Meanwhile, 62% of them expect this issue to drag on until next year.
Into the future
The end of these disruptions may still not be in sight. But Goldman Sachs already forecasts the global supply chain to stabilize by 2022. Whether it will happen or not, only time can tell. But instead of waiting in vain, you can do what you can at the present to improve your supply chain processes.
