- How have supply chains changed in recent years?
- Why are supply chain issues so relevant to small businesses?
- How to optimize your supply chain as a small business
Q: How is my small business affected by supply chain problems? How will supply chain optimization benefit my operations?
A: Small businesses are affected by supply chain issues more than any other business. Supply chain optimization ensures that your business is ready for surges in demand, potential bottlenecks, and product and labor shortages.
In early 2020, Covid19 devastated the nation. With stay-at-home orders being staunchly enforced, restaurants, retail storefronts, and any business deemed nonessential were forced to close their doors and hope for the best.
Understandably, this mass exodus from the workforce introduced an entirely new slew of problems for supply chains everywhere.
According to researchers at J.P. Morgan, the supply chain issues were caused by a ‘perfect storm’ of issues made more prominent by the pandemic.
Global lockdowns, labor shortages, and a massive shift in demand as individuals tried to keep themselves busy inside their homes for the better part of the year brought the economy to a standstill.
Thankfully, we made it through.
That said, entrepreneurs everywhere were made painfully aware of how important supply chain optimization is to the long-term success of their businesses.
Although supply chain network optimization might not have been enough to curtail the fallout from the pandemic, there’s a strong likelihood that such optimization would’ve helped several businesses that were forced to close their doors due to the pandemic fight through the lockdowns.
In this article, we’ll be taking a look at what a supply chain is, how supply chains have changed over the years, why supply chain problems can be so devastating to small businesses, and how small business owners can optimize their supply chains to make it through any kind of disaster.
- How have supply chains changed in recent years?
- Why are supply chain issues so relevant to small businesses?
- How to optimize your supply chain as a small business
- Using supply chain optimization through times of uncertainty
How Have Supply Chains Changed In Recent Years?
Before we dive into how supply chains have changed in recent years, we’re going to take a look at what exactly a supply chain is.
To explain, we’ve listed a couple of common questions that you may have when thinking about supply chains and how they’ve changed recently.
- What exactly is a supply chain?
- If my business provides services, do I have a supply chain?
- How do concerns about inflation and workforce uncertainty harm supply chains?
What Is a Supply Chain?
A supply chain is defined as the process of production and distribution of a product or commodity. Essentially, it is the steps required to procure, prepare, and distribute your business’s goods.
To break it down further, we’ve listed the supply chain that crude oil takes to become gasoline in an average gas station.
- Surveying potential areas to drill for oil.
After scientists have determined whether an area is suitable based on the five predetermined criteria for drilling – oil wells will be built, and the actual drilling and procurement of oil begins.
- Now, oil is produced.
- After producing the oil, it must be transported to various areas like refineries and storage facilities.
- The oil is now stored. This storage can be short or long-term depending on the supply and demand for fuel at any given time.
- Refineries now process the oil.
It should be noted that if the oil has gone to storage prior to being refined, it’s necessary for the oil to be transported again.
- After the oil is refined, it is now transported an additional time to a terminal.
Terminals are typically close to transportation sites and are where the fuel is prepared for sale.
- The fuel is transported one final time to the point of sale, in this case, a gas station, where it is ready for consumers to purchase.
The reason for breaking down these steps is to highlight just how much supply chains have recently changed.
Sure, the pandemic highlighted several instances where supply chain optimization would’ve been useful, but even prior to the pandemic, we’ve been creating stronger and more robust supply chain optimization tools for years.
For instance, take the steps in the oil supply chain that require transportation. When oil pipelines were introduced, they completely changed the entire oil business for the better.
Prior to the pipeline’s inception, oil was transported exclusively by the barrel. This was very ineffective and led to considerable loss as barrels would break and were generally poor transportation tools.
With the introduction of the pipeline, transporting crude oil became considerably more cost-effective and thrust oil refining into an entirely new era.
As a business owner, you’re almost certainly familiar with what a supply chain is, but taking this step back and examining the bigger picture can help you determine areas where you can create a pipeline of your own.
If My Business Provides a Service, Do I Have a Supply Chain?
The short answer is yes. For any finished product or service, there is undoubtedly a supply chain that gets it into the consumers’ hands.
For service providers, this could be as simple as making sure your employees have the necessary tools and training to perform the service.
So, if you’re operating a cleaning-services business or a financial services business, the supply chain would include acquiring the materials required to ensure your employees can clean or give financial advice.
Unfortunately, this means that supply chain optimization problems affect service industry businesses as well. If there’s a bottleneck in the supply chain that’s making it difficult for the cleaning product companies to procure materials to make their products, your business is going to suffer as well.
How do Concerns About Inflation and Workforce Uncertainty Harm Supply Chains?
Because a majority of the steps an item takes throughout its journey from raw materials to customer-ready products require employees to oversee or fabricate, the continuing public sentiment shift affects supply chains the same way it affects understaffed restaurants and factories.
With a shortage of workers, transporting goods becomes more difficult.
When transporting goods becomes more difficult, shipping companies will try and take shortcuts, overload their containers, or ignore bad weather warnings, leading to further delays.
Additionally, the combination of inflation and the pandemic-induced slowdown has led to a general shortage of goods and materials on the supplier’s end. This lack of goods and materials, in turn, has made supply chains more expensive and less efficient for almost everyone.
When the economy struggles, supply chains struggle. Especially on a global scale.
The pandemic and the ensuing fallout led to most businesses’ supply chains effectively shutting down. With considerably less travel, shipping and export costs skyrocketed, leading to the entire economy slowing down considerably.
Small businesses were, unfortunately, hit the hardest during the pandemic. Without access to cheap shipping and exporting services, it can be almost impossible to turn a profit.
Businesses with big enough coffers, however, were able to reestablish their supply chains.
Because they had the capital necessary to build their own networks, they were able to supplement the lack of traditional third-party shipping companies with their private network.
Through a local supply chain, these bigger businesses were able to cut out the middlemen completely, therefore eliminating their reliance on third parties.
Doing so allowed these businesses to determine their own lead times, keep their customers happy, and make it through the pandemic relatively unscathed.
In many cases, these companies actually made a killing by privatizing their supply chains and taking advantage of the online shopping craze that came with stay-at-home orders.
Why Are Supply Chain Issues so Relevant to Small Businesses?
Big businesses have the capital to get around large, systematic supply chain issues by fabricating their supply chains.
Doing so allows these businesses to continue operating as though nothing has changed and in the long run, will make them more money.
Unfortunately, small businesses are on the other end of the spectrum.
Because so many small businesses rely on third parties for their supply chain, even small downturns can prove disastrous if the company hasn’t taken the time to focus on supply chain optimization.
Big businesses are able to privatize their supply chains by cutting out third party manufacturers or raw material sources. Small businesses just don’t have the capital to do this.
Without the funding to create a local supply chain, small businesses are often caught in a position where they have no practical response to the supply chain problems.
Below, we’ve listed a few of the most relevant supply chain optimization issues that small businesses are forced to overcome.
- Rising costs
- Shipping and transportation problems
- Labor and product shortages
- Lack of information
Inflation affects everyone, even the companies that small businesses use to source raw materials or use for manufacturing.
Inflation causes prices of everyday items to skyrocket, and while bigger businesses are able to sell products at a loss to retain customers, small businesses aren’t as lucky.
When inflation isn’t as bad, consumers will often do their best to shop with companies whom they ethically and morally align with. When inflation is the highest it’s been in decades, those same consumers aren’t going to be as picky.
When small businesses are forced to raise prices, consumers are very likely to start shopping with bigger businesses solely because of the price difference.
Shipping and Transportation Problems
Shipping and transportation costs aren’t excluded from the rise in prices due to inflation either.
The combination of more expensive shipping methods in conjunction with generally higher-priced raw materials leads to small businesses being forced to raise their prices to laughable levels.
Again, small businesses are hurt by these shipping and transportation issues more than larger companies because the larger companies are able to sell items at a loss or work out bulk transportation deals with the shipping companies.
Labor and Product Shortages
With labor and product shortages, small businesses are affected in their own operations as well as within their supply chain.
For a business to succeed, you need to have enough inventory to meet customer demands. A lack of products and a lack of labor make it much more difficult to stay fully stocked.
Bigger businesses have access to more storage and a wider applicant pool, so these shortages will rarely affect them the same way they affect small businesses.
Lack of Information
Supply chain optimization isn’t something intuitive. When times are good, there’s little incentive for small business owners to familiarize themselves with alternatives to their current supply chain.
This lack of information makes supply chain problems even more difficult to overcome. If you don’t know all of your options, even the most sophisticated supply chain optimization software won’t be able to help you.
Even if it’s something as small as finding alternatives for each step of the supply chain, doing so gives your business a leg up during times of economic hardship.
Lacking alternatives within your supply chain means that you are subject to the whims of your suppliers and the market as a whole.
If a regular shipping channel becomes unusable, you’re now in a position where you must find alternatives fast enough to keep up with customer demand.
The drying up of Germany’s River Rhine is a supply chain optimization example of what can go wrong if you’re only familiar with one method of shipment.
This German River has been a major shipping channel for years, and now, with no end to the problem in sight, businesses that relied on the river to get their products or raw materials are forced to find alternatives.
More than anything, reliance on third-party sources and manufacturers is what makes supply chain optimization problems so difficult for small business owners.
Small businesses have to stay flexible.
They have to strike when the iron is hot so that they can make more capital and invest in building out their infrastructure. The ability to do so is significantly hindered if the supply chain can’t keep up with surges in demand or wider economic fears.
How to Optimize Your Supply Chain as a Small Business?
Supply chain optimization for small businesses takes some work. It requires proper forecasting, familiarizing yourself with alternatives, and preparing for the worst.
We’ve listed a few key takeaways for the optimization of your small business’s supply chain below. Keep reading to see how you can use network optimization to ensure that your business is ready for anything.
- Gauge demand and monitor customer sentiment
- Establish healthy relationships with suppliers
- Familiarize yourself with other options
- Switch to a remote business model
Gauge Demand and Monitor Customer Sentiment
You need to have an accurate gauge of the demand you’ll face for your product.
If you have an idea of how much a particular item or service sells then you will know how much you need to keep on hand.
Ordering too much product and hoping for the best won’t work because there is nothing worse than being stuck with product that you can’t sell.
Not ordering enough product will cause your business to miss out on revenue.
Monitoring your orders and seeing your sales in a given week will help prepare you for future sales. This monitoring of demand is often referred to as planning and optimization.
Through planning and optimization, you can do your best to make sure that your customers will never be without your product.
It’s not always easy to foresee supply chain problems before they arise, but gauging demand will provide you with an idea of how much product you need in a given time frame.
Rather than blindly ordering and hoping for the best, invest in storage systems for your busiest months. If you’re selling a product that is nonperishable, it’s a good idea to keep reserves of products for your busiest seasons.
Establish Healthy Relationships with Suppliers
Establishing a healthy relationship with the suppliers that you use is a great way to prepare for future supply chain optimization problems.
Suppliers are intimately familiar with their business, which is supplying.
By creating a relationship with these companies, you can get information on potential problems before the general public, learn about possible rises in pricing, and occasionally strike deals on bigger orders.
If you’re a consistent customer, suppliers might even be willing to cut you a deal regardless of the size of your order.
If you’ve curated a healthy relationship, your suppliers might even be willing to help you find alternative supply sources if they’re struggling with procurement.
Familiarize Yourself with Other Options
This might sound counterintuitive, but you can curate a healthy relationship with suppliers while familiarizing yourself with other options.
Even if your supply chain is delivering perfectly and you’ve created a healthy and long-term relationship, identifying alternatives will help prepare you for any possible supply chain optimization problems.
Make a list of the suppliers you can use and their respective prices. Take into account both qualitative and quantitative measures of potential suppliers and keep that information handy.
Switch to a Remote Business Model
Finally, switching to remote operations is helpful in multiple ways.
Not only does registering with a virtual office save you money that can be reinvested in your business, but it can also simplify the process of fulfilling orders.
Reliance on third parties is a thorn in the side of small businesses everywhere. Eliminating these third-party suppliers isn’t very realistic for a majority of small businesses either.
With a virtual office, the money saved from foregoing a traditional office lease can be used to build out your own network and invest in supply chain optimization tools.
You might not be able to cut out third parties completely, but investing in network optimization can relieve your reliance considerably.
Additionally, a remote business model gives you the opportunity to experiment with direct shipping from your manufacturers.
This can be a cost-effective way to free you to focus on other elements of your business.
Supply chain objectives
The three main goals of any supply chain are reducing costs, meeting customer demands, and improving your organization’s performance.
By following these actionable tips for supply chain optimization, you can make strides towards each of these goals.
The focus of any business is to make money.
Supply chain optimization ensures that your business is ready for surges in demand, supply chain bottlenecks, and even product and labor shortages.
Using Supply Chain Optimization through Times of Uncertainty
The currently turbulent economic situation has complicated supply chains in several areas.
For bigger businesses, this isn’t much of a problem, as they can simply fill the gaps themselves.
Small businesses should turn their attention toward optimizing their supply chains so they can continue to grow through uncertainty.
Reliance on third-party suppliers and manufacturers is a consistent issue for small businesses everywhere, and while eliminating these parties might not be doable, investing in network optimization allows your business to thrive when others are struggling.
Taking the time to familiarize yourself with the ins and outs of supply chain optimization can help you know when to keep the extra product in storage, when to prepare for an economic downturn, and how to cope with labor and product shortages.
- When to Spend, When to Save: Your Complete Guide to Business Optimization
- What’s Behind The Global Supply Chain Crisis?
- Global Supply Chains in a Post-Pandemic World
- In the U.S. and around the world, inflation is high and getting higher
- Supply Chain Management Is Broken. Can A Radical New Way Of Thinking Be The Solution?
- A critical shipping lane in Europe’s economic heart is drying up in the searing heat
Alliance Virtual Offices provides several virtual business solutions that can help with effective supply chain optimization.
With a virtual office, you can transition to remote operations and focus on building out the most effective local supply chain.
A flexible company office with a professional address and a space to work and meet provides you with the supply chain optimization tools you need to help your business scale while ensuring that you’re prepared for any potential economic downturns or surges in demand.
It doesn’t matter if you’re a solopreneur or a team with dozens of employees, Alliance’s workspace-backed virtual offices allow you to work close to home or near clients and colleagues.