The ongoing supply chain crisis that’s affecting a range of industries around the globe isn’t sparing small businesses in the United States. Logistics experts say the problems are likely to get worse before they get better — potentially dragging into 2023 or beyond.
The situation has put tremendous pressure on businesses, leading to increased prices and hamstringing their ability to grow at a time of high consumer demand.
But experts say there are strategies businesses can pursue to safeguard their supply chains, defend against disruptions and limit risk.
Brian Marks, senior lecturer and executive director of the entrepreneurship and innovation program at the University of New Haven, said small businesses don’t have some of the built-in advantages larger companies have in their supplier networks. They can’t dictate prices or spread out increased shipping costs at similar levels.
Marks said that makes it critical for small companies to be proactive and plan ahead when disruptions are likely.
He said some companies are trying to deflect risk by buying in high quantities now, but he said that strategy could backfire in an uncertain environment where a new Covid-19 variant could affect customer habits. Companies could be left with too much inventory.
Against that backdrop, Marks said small businesses need to be innovative, creative and even collaborative.
He said there could be opportunities for small businesses to form a formal cooperative to increase their buying power or to find other ways to work together to secure the goods or components they need.
In this climate, Marks said companies need to be planning far ahead.
“The fundamental thing is small businesses have to start engaging in greater planning,” he said. “They need to be looking at a much longer time horizon. If I were a small business today, I’d be planning already for next holiday season.”
Ideally, he said businesses should be estimating what conditions could be like 18 months out — including shipping costs, which he noted are unlikely to return to pre-pandemic levels.
Marks said he knows of one instance where there was a pre-Covid quote of $3,000. About a month ago, the quote was roughly $22,000.
Price increases are just one of the headaches supply chain disruptions are posing for small businesses. Many companies are having trouble fulfilling contracts, and that has both revenue and legal implications.
Brendan Collins, a litigation partner at law firm Ballard Spahr LLP, said the current environment has made it important for businesses to diversify their supplier base when possible, such as having alternative sources or backup options if a needed product or component isn’t available.
Collins said it’s a smart time to review force majeure clauses in contracts to make sure they are not leaving a business exposed to supply chain fulfillment issues outside of its control — especially contracts that have been recently changed or updated for long-term clients or vendors.
Despite the potential for litigation, Steve Burkhart, an of counsel at Ballard Spahr, said he’s seeing suppliers working closely with each other to find common ground. He said some companies may have to change their mindsets to address the new reality. A sales team accustomed to having its pedal to the metal may need to start taking the supply chain into account and proactively managing expectations for deliverables.
Some orders, for example, may just not be possible in the current landscape, and that needs to be addressed up front.
“Anticipate your business wrinkles down the road now and how you want to deal with them,” Burkhart said.
While considerable focus has been on the retail sector, experts say it’s an issue that is going to touch nearly every industry and the overall economy.
“If you think about it, there’s a consumer product that touches every component of what we do. There’s a consumer product in your car. There’s certainly consumer products in construction,” said Brett Rose, founder and CEO of international wholesale distribution company United National Consumer Suppliers. “It drives inflation.”
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