Nobody likes to find an item or brand they want is out of stock, but as any retailer knows, it’s happening more frequently. And it’s becoming more clear that businesses will likely face supply chain constrictions for some time.
Shipping delays and cost increases are expected to continue. In September, four records were set in three weeks for the number of cargo ships waiting to unload off the California coast, which has led to delays increasing by 425% year-over-year. Some analysts suggest that supply chains will be tight well into 2022 and maybe even beyond.
Such challenges in the supply chain may cause a shift in how businesses adopt to these challenges.
- It reflects a seismic change of the “just-in-time” logistics philosophy that is the heart of modern-day capitalism.
- Companies can no longer delegate their success to the tight performance of their supplier base in the name of efficiency.
- There may be a build out of raw material and work-in-process inventory, which will likely further challenge inflationary pressures.
- Businesses can no longer depend on unreliable ports.
As Bloomberg News reports, “The system underpinning globalization—production on one side of the planet, connected to consumers on the other by trucks, ships, planes, cranes and forklifts—is too rigid to absorb today’s rolling tremors from Covid-19 or to recover quickly from the jolts to consumer demand or the labor force.”
According to Bill Dunkelberg, Chief Economist at the National Federation of Independent Business: “As the economy moves into the fourth quarter, small business owners are losing confidence in the strength of future business conditions. The biggest problems facing small employers right now is finding enough labor to meet their demand and for many, managing supply chain disruptions.”
Considering these challenges, how can businesses keep growing as demand increases and supply chain issues persist? Businesses will need to get creative. It’s time to reassess supply-chain design and ordering practices.
Diversify suppliers. Depending on your business, you may be able to order from other vendors or even share inventory. Companies in similar businesses or in different geographies may have different demand patterns and items you need but they don’t.
Manage inventory more tightly. In some cases, you may want to overstock. Another supply solution may be to reduce the number of choices available. Stocking fewer types or brands of some items can be a way to simplify and strengthen your supply chain while reducing overall inventory carrying costs. You might be able to offer alternative products or suggest customers pre-order standard purchases.
Raise prices. Few company owners like to take those measures, but many are. If you need to take this step, consider giving your customers advance notice. Explain that the decision is driven by increased material, shipping and general operating costs.
Communicate. Regular updates help. Even if you have no news on a long-delayed custom order, customers are more understanding if they know what’s going on or see that you’re aware of the situation.
Invest in automation. Now might be the time to consider investing in technologies that can build resilience by reducing labor costs and mitigating exposure to labor shortages, especially collaborative automation focused on simple processes like packaging and administrative processes like accounts payable automation.
Supply chain, ordering and inventory practices will not return to auto-pilot in the near future. As a result, ordering will need to be continually reassessed and fine-tuned for the foreseeable future.
Building optionality into supply chains is essential in a world where the pace of change is relentless. Companies that look for new ways of working and find new options for customers are the ones that will thrive.
By Scott Sehnert, Executive Vice President, Market President, VP, Rocky Mountain Bank
