6 Lessons Small Business Owners Can Learn from the Supply Chain Issues of 2021
Until recently, the only people who thought about logistics and inventory were the people taking inventory to make sure their businesses run smoothly. But nowadays, just about everyone is talking about supply chain issues. Why? Suddenly, getting what you want or need—from toilet paper to winter coats to holiday gifts to essential medications—isn’t so easy.
This article will explain the supply chain crisis, focusing on what caused the supply chain issues of 2021. Then, we’ll review several best practices for supply chain crisis management—so your company can keep satisfying demand.
What caused the supply chain crisis in 2021?
When the coronavirus began to spread in early 2020, it caused major disruptions to the global supply chain.
The global supply chain is a vast network of manufacturers and transporters that move raw materials and finished goods to enable the production and sale of goods. Many factories and industrial manufacturers closed their doors or reduced production due to sick employees or government-mandated lockdowns.
Since these factories closed, shipping companies reduced their work schedules. But demand surged for certain goods, big and small, as a result of the pandemic, too—home office supplies, exercise equipment, home improvement materials, and cars are just a few of the things that demand surged for in 2020 and 2021.
So factories, when they could, started to produce more. But simply creating more goods is not that simple. The global supply chain was getting more and more clogged, and those much-needed raw materials couldn’t get from warehouses to the factories that needed them.
One of the biggest issues was a shortage of shipping containers. Empty shipping containers were stuck in the wrong regions. And according to The New York Times, the cost of shipping skyrocketed, too. Moving a shipping container from Shanghai to Los Angeles usually costs around $2,000. By 2021, the price was $25,000.
There were also considerable waits to dock shipping containers at key ports—and a much-publicized shutdown of the Suez Canal. The global supply chain is not expected to re-stabilize until well past 2022.
What can business owners learn from this supply chain crisis?
No business could have predicted COVID-19’s impact on the global supply chain. But there’s still a lot business owners can learn from the supply chain crisis. Here are some of the key takeaways:
1. No business is too big or too small to ignore logistics
The 2021 supply chain crisis wasn’t kind to businesses of any size. Big-box retailers, who you’d never expect to run out of anything, faced product depletion. Automakers ran out of computer chips. Even Fortune 500 companies had to wait months for their finished goods to secure a spot on a shipping container.
Small businesses, too, were affected by the supply chain crisis. These tinier companies usually rely on local suppliers to provide them with raw materials and finished goods. But those local suppliers might depend on the global supply chain to get what they need.
If you own a small business, you should still have a clear and comprehensive view of your supply chain, lest an unforeseen event drives it to a grinding halt. It’s essential to keep an eye on supply, demand, and disruptions to the supply chain so you can think ahead.
2. Doing a supply chain analysis can help you identify issues early
During a supply chain analysis, your business can evaluate every little step of your supply chain, from how you get your raw materials to how your customers receive what you’re selling. A supply chain analysis can help your business identify vulnerabilities in its supply chain and make adjustments before things get out of control.
Usually, supply chain analysis starts with mapping out all the players in your supply chain. Once you’ve created a clear picture of your chain, collect all the data you can on your supply chain partners. Who’s in a vulnerable location? Who’s had a factory shutdown recently? Are there any political, medical, or social issues that could cause shutdowns, slowdowns, or embargos?
A supply chain analysis is hard work—and it’s not something everybody knows how to do. Your company can always hire a logistics consultant to help you identify any concerns in your supply chain.
3. Forecast demand—and demand volatility
Forecasting demand is all about relying on data, market research, and current trends to determine how much inventory you’ll need to keep up with your customers’ wants and needs. And, as we’ve discussed, unexpectedly high demand is one of the main contributors to 2021’s supply chain crisis.
While nobody could have predicted the sudden spike in demand for Peloton bikes, active yeast, and hand sanitizer, just about every business could benefit from sharper demand forecasting strategies. While standard forecasting strategies might review past orders to inform next year’s needs, the demand forecasting game is changing daily. Your company needs to stay attuned to new consumer trends that might affect your inventory.
Another thing your business might want to study up on? Demand volatility—rapidly and virtually unpredictable changes to demand. Demand volatility skyrocketed during the height of the pandemic, and experts believe it won’t end anytime soon.
This demand volatility report from McKinsey shines some light on consumer behavior pre-COVID and beyond. One key takeaway? Both business and their supply chains need to become more flexible if they wish to thrive.
4. Always have safety stock on hand
One best practice that just about every business can follow? Maintaining adequate safety stock. Safety stock isn’t just a guess about how much extra coffee beans a bagel shop might need, either.
Safety stock, also referred to as buffer stock, is a calculation. The formula for determining safety stock is: (maximum daily usage x maximum lead time in days) – (average daily usage x average lead time in days).
Daily usage is how much of a product your business uses in a day. Lead time is the number of days it takes for your order to arrive once you’ve put in the request with your supplier. Calculate lead time by adding your supply delay (how long it takes your order to arrive after your supplier accepts it) and reordering delay (the time between when you place an order and when your supplier accepts it).
Another helpful tip? Remember to recalculate safety stock from time to time, as your daily usage and lead time can change rapidly during times of volatile demand.
Your business might want to solve for a couple more inventory calculations, too. Consider determining your inventory turnover rate and reorder point to help you figure out how quickly your inventory moves and exactly when it’s time to order more.
5. Have alternate suppliers vetted and on-call
During your supply chain analysis, you may come across a few partners with some significant vulnerabilities. And even if you don’t, it’s never a bad idea to create a list of backup suppliers who might be able to help you should anything go amiss.
Finding alternate suppliers for your inventory, vetting them, and setting up an active account with them can help make an emergency switch seamless. That way, should you need their help, they’ll be willing and able to assist right away.
6. Be prepared to innovate at a moment’s notice
If there’s one thing that the coronavirus pandemic has taught businesses, it’s that thinking outside the box is essential. Companies pivot, factories shut down, shipping containers get stuck at the port.
Ask yourself: How can you keep your business running smoothly, even when nothing’s going right? Maybe that’s offering loyalty discounts to frustrated customers, or cutting out vendors who aren’t forthcoming about delays or offering fun deals on the products you do have in stock. Although supply chain disruptions have many negative consequences, you can do damage control by looking for ways to turn volatility into opportunity.
Dealing with an unpredictable global supply chain is hard enough right now —having a disorganized, ineffective inventory management system can make everyday operations and logistics even harder.
Fortunately, modern inventory management software can help businesses of all shapes and sizes get organized for good. This is especially true for companies that track inventory across multiple locations. After all, if you’ve got a ton of stuff in lots of different places, it can be really difficult to figure out what you need, what’s running low, and what needed to be reordered yesterday.
The right inventory app can not only help you track all of your business’s stuff but can alert you the moment products are running low, approaching warranty end, or about to expire. That’ll give you a little extra time to reorder what you need. And, since today’s supply chain is so unpredictable, you can raise those minimum thresholds and get alerted sooner, too.
Other features to look for in an inventory app? Insist on a product that offers…
Barcode and QR code scanning to save you time and stress
Multiple user accounts, so your whole team can help out
Customizable reports, so you can use inventory records to forecast demand
Detail-rich item profiles, so you can record critical notes about products, vendors, or reordering concerns
Ready to organize your company’s inventory? Try Sortly’s top-rated inventory app today, totally free with a two-week trial.
Lauren writes about inventory for Sortly. Her favorite thing to organize? Her comically large collection of stuffed animals.