We are at the tail end of a lengthy global supply chain crisis, but business logistics all over the world continue to face backlogs, congestion and unexpected disruptions on a daily basis.
There is no singular cause behind this. From geopolitical conflict to natural disasters alongside the ongoing repercussions of the pandemic, supply chains worldwide remain in a volatile state. The result? Limits on manufacturing, severe delays, and increasing barriers to transportation which in turn impact every individual and business in some way or another.
This doesn’t just make it harder for logistics companies to manage demand. A volatile supply chain means countless businesses are having difficulty forecasting and sticking to their growth plans. Meanwhile, both businesses and consumers are struggling with record inflation, shortages and rising debt. All this means that SMBs are having to cope with less demand as customers tighten purse strings, and when there is demand, supply chain challenges means customer expectations are challenging to meet.
This doesn’t mean that there aren’t actions you as a small business can take to mitigate against these challenges. In this guide, we’ll take a look at how SMBs can prepare for and manage disruptions caused by a global logistics landscape that continues to be marked by instability.
The Global Supply Chain in 2023
The last few years have created and exposed many vulnerabilities in the global supply chain. This all began when the supply of finished goods was seriously affected by labor shortages and shutdowns during the COVID-19 pandemic. Although much has changed since March 2020, the lasting impact of the pandemic is still being felt, and further crises have created supply chain ‘bottlenecks’, resulting in additional shortages.
The solutions to these macro issues are not simple. In the long run, governments and the industry are looking to the general expansion of the logistics sector’s capacity and building greater transparency across supply chains.
Meanwhile, the disruption to logistics caused by geopolitical tensions in Europe may only conclude with the end of the Russia-Ukraine war. While rising inflation has slowed this year, the return to normal is still a distant prospect. What businesses can do in the immediate future is hope for the best, but prepare for the worst.
“Regarding the global economic and supply chain issues we are facing, I do not see them resolving over the next few years. I believe both infrastructure from a physical and fiscal perspective are way too dated. It’s going to take a decade or two for them to be brought into the modern world and enable these platforms to scale for the foreseeable future.”
- Daniel Fine, Setscale CEO
Supply Chain Trends to Watch
Before we discuss the optimization of supply chains, first it’s important to grasp the trends that will influence global logistics in the immediate future.
Geopolitical tensions have led to less cooperation between countries around the world. The risk of further strain in international relations only escalates the possibility of trade route closures and supply chains shocks. In response, governments are turning towards solutions that improve self-sufficiency. This highlights the value of SMBs using domestic suppliers. Where this is not possible, any outsourcing should be prioritized to those countries that are geographically closer, with more secure trade links to their country.
Supply Chain Policy
The U.S. government announced its plan in 2022 to revitalize American manufacturing and supply chains. An important aspect of the policy is to expand capital access for small businesses. Specifically, the policy declared $70 billion will be provided for small business loans and investments. The Small Business Administration (SBA) is also prioritizing licenses for Small Business Investment Companies (SBICs) who are “committed to providing capital to domestic small business manufacturers”.
Since logistics is one of the most profitable industries globally, in recent years it has become more of a target for cybercriminals. Hackers’ methods are growing more sophisticated, exploiting vulnerabilities across the physical movement of goods, but also the digital footprint left by supplier networks. Today, advanced logistics uses a great deal of data and shared information, as well as more connected technology (Internet of Things devices) which bring efficiencies, but also increased vulnerabilities that criminals can exploit.
Supply Chain Network Optimization
“The global supply chain issue is not only one of supply chains. It is also a challenge in terms of government relations and policy. Based on adjustments in supply chain, and adjustments in global relationships, companies should make sure they have backup no matter what. People don’t know when goods are going to be stopped at borders, what tariffs could be added by surprise, so on and so forth. Companies need to be prepared to respond to any of those potential challenges.”
- Daniel Fine, Setscale CEO
Although there is hope for improving supply chains long-term, the most realistic option for SMBs and in fact all businesses is to create a strategy that prepares them for disruption. That way, a business can adapt to changing circumstances with resilience. Some strategies SMBs can use for supply chain optimization include:
Proper inventory management helps businesses meet customer demand, maintain the correct supply, and also make predictions for future needs. For example, in the event of a supply chain breakdown, companies can use backup resources in their primary supply chains.
One way to do this is to shift from a ‘Just-In-Time’ to a ‘Just-In-Case’ model. This is where a company keeps additional inventory of critical items. Businesses can also carry out inventory forecasting using historical sales data to predict future demand for their products, so they can make more precise decisions around supply, although this must also take into consideration socio-economic trends like the cost-of-living crisis which are reducing demand.
Business Resilience Planning
Resilience in business means quickly bouncing back in an emergency — and weathering shocks to supply chains is a prime example of this. To do so, many organizations adopt business continuity management strategies. These serve to identify vulnerabilities and risks that crop up across the supply chain and all other operations. That way, there’s always a plan in place to ensure critical business functions can continue when unexpected events strike.
It’s important that business continuity measures are planned out during periods of stability. After identifying the potential impact different disruptions could have on the business, staff can carry out risk assessments and build a business continuity plan. In the supply chain’s case, this is where backup systems are created in the case of breakdowns, including dual sourcing suppliers, cyberattack protections and even planned price increases.
Diversification of Suppliers
Another strong technique for supply chain optimization is diversification. In another article, we talked about the importance of using multiple funding sources to protect a business’s cash flow in a volatile economic environment. The principle is the same for supply chains—when you rely on a single supplier for a certain type of goods, this creates a risk to business continuity in the case of sudden failure.
Instead, to guard against localized shortages, businesses should identify and engage with a range of suppliers across locations. A separate upside to this is that it can create more competition among suppliers, giving your business a negotiating advantage.
It is no use trying to hide the impact of disruption. Though it’s important to always try and fix problems before they become a customer issue, the knock-on effect of disruptions will usually reach them in some way or another—whether that’s because of delays or a more limited choice of products. Be transparent and honest with your customers about any unexpected changes to supply and delivery dates. By giving them advance warning and reasoning, you will retain credibility and trust.
A great deal of SMBs rely on outside financing when emerging in the market, and supply chain disruptions are one of the biggest drivers behind this need. Logistical issues often put pressure on businesses to divert their working capital into dealing with the outcomes of disruption. For example, postponed order fulfillment or late invoice payments.
However, since bank loans are harder to obtain for SMBs, many pursue alternative financing options. These include supply chain financing (SCF), where a third party finances an advance payments to suppliers on behalf of a buyer, easing cash flow for both parties. Another is purchase order (PO) financing, where a third party directly pays a business’s suppliers, helping the business meet demand if, for instance, shortages happen.
Flexible Financing For Supply Chain Management
Global supply chain disruptions are not going anywhere soon. From our experience across retail, trade finance and multiple industries, we know the tools and strategies that businesses need to stay ahead of disruption. Ultimately this comes down to being agile, and that takes careful planning.
To properly mitigate risks, businesses need to fully understand each chain of their operations. Unexpected shocks are bound to continue, but by being proactive and searching for ways to make your operations more resilient, you can absorb your challenges and concentrate on seizing opportunities when they come.
Setscale is committed to helping SMBs meet purchase order demand, even in times of disruption. With our flexible PO financing model, we support ambitious businesses to maintain their growth by paying suppliers directly. Get in touch today to learn more about how our solutions can cover purchase order demands for businesses.