Supply chain problems are still making things challenging for small businesses.
The pandemic, geopolitical conflict and labor shortages continue to snarl small business suppliers and shippers around the world, causing unique problems for millions of business owners just trying to get what they need.
While big corporations can use large orders to jump the supply queue and hire private shippers to get their materials faster, supplies for small businesses are harder to come by.
According to our research from March, eight out of 10 small businesses said they have been impacted by delays, with one in four owners suffering a “significant impact” due to the delays.
Two-thirds of owners said rising material costs have had a moderate to significant impact on their small business.
That raises some tricky questions for small businesses: Should you buy out current supply when available and stockpile materials? How do you explain delays to customers? And when will it all end?
Recently, the Small Business Administration hosted a discussion on how experienced small business owners are navigating supply chain challenges.
Here are eight of the best tips to help you navigate this frustrating small business problem:
1. Understand the costs of extra inventory
For small businesses, “We've always been taught to be just in time, to be as streamlined as you can and as efficient as you can and not tie up a lot of cash around inventory,” said speaker Greg Britton, a small business owner and CEO of the Florida Small Business Development Center (SBDC) Network, in a recent webinar hosted by the Small Business Administration.
But now that’s changing: More businesses are ordering extra “just-in-case” inventory in case their orders get delayed. Of course, this strategy comes with added costs.
If a small business doesn’t have enough cash flow to buy additional stock, then it may need to borrow.
“Now I'm leveraging my lines of credit to buy that inventory,” Britton said. “And then the profit margins are thinning because all those costs of the materials are going up.”
The issues are magnified if you’re ordering complex equipment. Recently, the average wait time for long-term assets hit 186 days: an all-time high.
These equipment delays could mean paying more interest if you’re using lines of credit, Britton said. There could also be tax implications if you order equipment you had expected to use this year, but it doesn’t arrive until the next.
2. Prioritize your most important items
You can’t use up all your cash flow or lines of credit to hoard all the supplies your small business might need, so you have to decide what’s most critical.
So what should you order early?
“Really sit down and think about your supply chain and then lay out what those risks are,” Britton said. “If you have an item that you just know that there's only one supplier for, maybe that's a high risk item to you.”
He added it can be helpful to use data to figure out what’s essential. “If you're in manufacturing, leverage that ERP (enterprise resource planning software). If you have a point-of-sale system, look at that point-of-sale system: what are you selling the most of?”
You should think about the equipment your business can’t live without, and anticipate its maintenance needs.
Zachary Davis, the owner of The Penny Ice Creamery in Santa Cruz and another panelist on the SBA webinar, shared what happened when a pasteurizer’s control unit failed recently.
“Normally we'd be able to call the manufacturers based here in the United States,” Davis said. “They would just send us the parts, we'd plug them in and away we'd go.”
But supply chain issues meant they couldn’t get replacement parts in time, which forced the ice creamery to find creative solutions.
Thanks to the skills of his staff, the dessert shop was able to “actually pasteurize on the stovetop, kind of the way it used to be done,” Davis said. “The other piece looking forward was we decided to buy a second control unit to have as a backup. That meant an outlay of capital that we weren't necessarily anticipating, but we felt like it was worth the risk because this is such an important part of our manufacturing process.”
3. Cultivate supplier relationships
When it comes to navigating small business supply chain problems, having a strong relationship with your suppliers can make a big difference when it matters most.
Good communication helps both owners and small business vendors plan ahead.
“The better relationship you have with that supplier, the better chance you're going to have to continue to have your inventory,” Britton said.
Britton, who owns a watersports company, said having a close relationship with a supplier helped him get one of the last available Yamaha pontoon boat engines last year. They’re now backordered in the United States until late 2023.
“If I didn't have that relationship with that person, I'm not sure I would have gotten those pieces of equipment back in 2021,” he said. “I might have been using even older equipment.”
4. Consider vertical integration
If your small business’s supply chain continues to fail you, you may want to see if there are aspects of your production that can be vertically integrated — in other words, taken in-house.
Britton said that a product could experience compounding delays if it relies on multiple vendors throughout its manufacturing process.
That’s a situation where it might make sense to absorb the whole process internally, even if it means higher costs.
5. Be honest with customers
Many customers have heard about supply chain current events in the news — which helps when you’re being truthful with them about the challenges and business disruptions you’re facing.
“You're not the only business having effects from supply chain issues,” Britton said. “So when a customer has an issue, be very clear.”
6. Make sure your staff feel valued
In tough times, it’s more important than ever that business owners retain their workforce, the speakers said.
Davis said that his ice cream shop is able to navigate challenges in large part due to his staff’s “ability to think creatively when faced with challenges.”
That’s why the owners are trying their best to give back. Paying employees well is the baseline, but there are other things business owners can do.
“We're just trying to show our appreciation to our staff in any way we can,” Davis said. “We schedule after-hours get togethers. [We also] really focus on training and giving them the resources and tools that they need to be able to do their jobs and feel empowered and comfortable and confident in showing up. As much as possible, try to keep it fun.”
7. Get help
Britton encourages small business owners to reach out to trade associations, like your local Small Business Development Center (SBDC). These offices can provide invaluable advice about how to adjust your business to deal with supply chain disruptions.
“They provide one-on-one consulting to really help you understand cash flow, inventory processes and feasibility studies to understand: Does it make sense to diversify, and what does that diversification look like? Is there a demand out there for what you're thinking about doing?”
Davis agreed: “The SBDCs are a fantastic resource. In founding our business and getting started, both securing financing and putting together a business plan, we worked with our local SBDC here in Santa Cruz county. It was just a tremendous help.”
8. Embrace uncertainty
Unfortunately, there’s still no guarantee of when current supply chain problems will ease.
One way Davis tries to cope is to stay informed, he said. “I spend as much time as I can [gathering information], everything from reading long range weather forecasts to agriculture and trade magazines, talking to vendors, and then stockpiling what we can of those key components and figuring out how to make do.”
But at a certain point, you have to accept that there’s only so much you can do. Trying to predict everything takes time, and “for small business owners and entrepreneurs, time is often the most precious commodity because you really are doing everything all the time,” said the ice creamery owner.
That’s why small business owners deserve enormous credit for getting through this period, despite all the uncertainties.
“I want to cheer on all the folks out there that are working through these challenges and making a go of it and doing the best they can,” Davis said.
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