5 Ways Small Businesses Can Navigate the Supply Chain Crisis

Small businesses are disproportionately affected by current disruptions. Here’s how to build more resilient supply chains with limited resources.

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Small businesses account for 44% of U.S. economic activity, yet the past few years have been especially challenging as these businesses have navigated the pandemic, financial strain, and supply chain disruptions. A Software Advice survey shows that small and midsize retail businesses (SMBs) are disproportionately impacted by the current supply chain crisis, compared to enterprise organizations that have more resources to weather disruptions.

Retail SMBs feel especially disadvantaged in inventory procurement—91% believe that large corporations have an advantage over them in this process. And nearly half (46%) have been dropped by at least one vendor for reasons specifically related to being a small business. While enterprises have the ability to place larger orders or have access to new or different shipping methods (e.g., chartering bulk vessels), SMBs are feeling particularly vulnerable.

And further exacerbating current disruptions, the war in Ukraine has added more pressure to an already stressed global supply chain. In fact, 86% of U.S. retail SMB supply chains have already been impacted or expect to be impacted by the conflict.

Supply chain challenges will continue as other economic trends are expected to create more waves. Between record inflation and increasingly tense global trade, businesses should anticipate that higher prices and a short supply of raw materials will continue to be a challenge for managing supply chains.

We’re all familiar with the saying, “change is the only constant,” which is why it’s important to build more resilience into your supply chain. Here are steps that SMBs can take to navigate current challenges and prepare for future disruption:

  1. Diversify your vendors

Relying on a single vendor has become riskier as supply chain challenges continue. Over a third (35%) of retail SMBs say that relying on a single vendor is their main supply chain challenge, compared to 25% of retail SMBs in a separate study from October 2021. Having vendor diversity, or at least identifying backup vendors, can help you manage disruptions.

These pointers can help you select the right backup vendor: ensure they can produce the same quality of product and are amenable to your production needs, are willing to strategize logistics together, and will negotiate a rate based on origin country or location.

  1. Partner with other SMBs to share the supply chain network

SMBs are being deprioritized because of smaller order sizes: 42% say that their inability to meet the minimum order size required by vendors affects their ability to compete with large corporations. Consider collaborating with other local SMBs that may be purchasing the same or similar products from the same vendor to place larger orders that meet the minimum size requirements.

SMBs can also partner with larger companies. American Eagle Outfitters chief supply chain officer, Shekar Natarajan, is a vocal supporter and driver of businesses sharing resources from packaging materials to logistics. Natarajan told Fast Company, “An open, shared supply-chain network is the only way to level the playing field, so companies of all sizes can compete with the biggest players.”

This approach will continue to gain momentum as retailers see the cost, customer satisfaction, and environmental benefits of sharing their network instead of keeping their vendor lineup a competitive secret.

  1. Move away from a “just-in-time” mindset

The “just-in-time” approach has been popular in the supply chain industry for years, but this practice places more pressure on every step in an already-strained supply chain and manufacturers are starting to move away from it. Fast Radius found that 48% of the engineers, industrial and product designers, and procurement professionals they surveyed said they’d previously employed JIT, but moved away from the model.

There are multiple ways to move away from a “just-in-time” approach. First is switching to “just in case,” meaning to buy more product upfront and store it near/at your distribution center. You need to ensure that you have appropriate warehousing to store inventory for orders placed earlier than needed. Finding affordable warehousing can be a challenge for SMBs, so consider partnering with other local SMBs on a shared storage space. Second, you can expand your vendor network and work toward “cloud manufacturing” or digitized manufacturing.

  1. Network with vendors

Don’t forget that it’s not really a supply “chain,” it’s a network. Openly discuss your goals and challenges with current vendors, and work on a strategy together to address them. You should also schedule check-ins with vendors to discuss ways to improve your relationship. Building and strengthening long-term relationships with vendors means you’re better positioned to navigate challenges as they arise.

  1. Conduct a supply chain vulnerability audit

Prepare for future disruptions by reflecting on where your supply chain vulnerabilities lie. Conduct an audit to identify what’s working and where improvements are needed to strengthen your supply chain. Bring in leaders from other departments, including sales, product design, and IT, to help identify points of weakness and areas for improvement from a holistic viewpoint. Use the findings from this audit to inform conversations with vendors on how to mitigate future disruptions.

Don’t forget to leverage technology during the current supply chain crisis. Find software that can help create operational efficiencies, manage supplier relationships, and forecast upcoming inventory needs. SMBs should also consider AI-supported technology. SMBs are well positioned to adopt AI within their supply chain processes because they can adapt swiftly and aren’t bogged down by massive, legacy systems more common at large corporations.

By taking these steps to strengthen your supply chain, your SMB will be better prepared to navigate future disruptions and remain competitive against large competitors.