Supply Chain Woes Trouble Small Business

  • First Bank
  • 02/22/2022
  • Business
  • Article

Disruption. Over the last two years, it has been a constant in our lives. For small businesses, the disruption from the COVID-19 pandemic has been relentless.

From managing COVID mandates to labor shortages and productivity concerns, the businesses that have survived have had to quickly adapt to a constantly evolving new state of normal.

This new normal is anything but ordinary. At every turn, small businesses continue to face significant challenges such as ongoing workforce issues, unanticipated costs associated with COVID-19 safety protocol compliance, dips in revenue due to shifting buying habits, and more. 

COVID-related disruptions and shortages have plagued nearly every facet of enterprise, perhaps none greater than the global supply chain.

During the early stages of the pandemic, without access to local shopping or dining, sheltering-in-place consumers infused with stimulus checks turned to the internet for everything from toilet paper and hand sanitizer to routers and Wi-Fi boosters as they settled into months of working and schooling from home.

Whether consumer shopping habits have permanently shifted remains to be seen, but a reliance on online shopping and no contact, at-home deliveries is certainly not showing any signs of slowing. According to U.S. Census Bureau data, e-commerce sales jumped nearly 23 percent in 2020 compared to the prior year and, at the time of the report, online sales in 2021 were on track to outpace that record.

While delivery companies have ramped up staffing and fleets to meet heavy consumer demand, a supply chain already stretched thin has become increasingly stressed – particularly as employees exposed to COVID-19 fall ill or quarantine for days or weeks at a time due to an exposure spreading throughout their family unit. Many have also opted out of the workforce for good, whether for personal reasons such as seeking greater flexibility or due to disagreements over vaccine mandates.

Learn more about the pandemic’s impact on the labor market.

Due to these workforce shortages, manufacturers have struggled to keep up with the production of raw materials needed for critical goods like metal and semi-conductor chips, which are used by companies in nearly every industry, further delaying the production of products and services that consumers demand.

Shipping companies also continue to struggle with port closures and shortages of longshoreman, who are skilled at using the equipment needed to move heavy steel containers on and off ships and trains.

As a result, ports and railways have become severely congested, stacked with extensive labyrinths of badly needed shipping containers that might sit for days, weeks, or months before they can be unloaded and used again.

The shipping industry is also continuing to feel repercussions from early-pandemic “blank sailings.” These empty shipping containers being moved around the world now sit in the wrong places and at the wrong times making it harder for companies to get them. Further, critical equipment like chassis – needed for loading and unloading the heavy, steel containers – are also in short supply adding another layer of complexity to the backups.

When these containers are finally unloaded at ports or in rail yards and products go out for delivery, the slowdowns continue due to nationwide truck driver shortages as well as a lack of employees to stock store shelves.

A representative with a small, St. Louis-based supply chain management consulting firm shared, “It is a nightmare out there in the freight world and has been for well over a year. The biggest issue is increased transit time and associated costs.  Depending on the lane, it can take more than a month or more to get a booking overseas for a shipment, and freight will face delays at nearly every step.”

In many cases, overseas transit time has nearly doubled due to port closures and steamship lines have significantly increased prices for shipments as vessels are forced to wait at ports for days or even weeks. Many suppliers now refuse to ship containers inland to the Midwest in an effort to speed their return to Asia, further driving up costs for small businesses.

While large, global companies have the clout and large contracts to ensure shipping needs are addressed relatively quickly, smaller businesses are forced to accept delays of goods they desperately need in order to remain profitable. A revenue hit, combined with higher than normal shipping costs, is resulting in unacceptable margins that force these companies to consider going out of business entirely.

In Oct. 2021, the President and CEO of the U.S. Chamber of Commerce, Suzanne Clark, told NBC News, “This supply chain crisis is hurting businesses and consumers alike, leading to inflation and shortages of key supplies. Coupled with massive labor shortages, this is a major threat to our fragile economic recovery and long-term competitiveness.”

A recent poll by Goldman Sachs noted that 69% of small business owners reported that supply chain issues have negatively affected revenue, and only 13% of negatively affected businesses believe the problem will ease over the next six months. The poll, conducted from Jan. 10 to 13 by Babson College and David Binder Research, included 1,466 Goldman Sachs 10,000 Small Business Voices participants.

Without an end to supply chain woes in sight though, what can small businesses do to protect the bottom line now and in the future?

  • Keep it lean: Now is the time to take a good look at all aspects of the organization and make it as lean as possible. In other words, take the time to understand what is required to run the company and focus on paring it down to the bare minimum, from employees to inventory. 
  • Keep it simple: The more that small businesses can reduce the complexity and the variety of what they offer, and simplify the mechanics it takes to get those products and services out the door to consumers, the better.
  • Diversify the supply chain: Research products and services that can be substituted for those in highest demand as well as identify suppliers across multiple markets and regions that can be tapped. Although labor costs might be higher, consider seeking out a U.S. manufacturer. With the high costs of shipping internationally, local production might be the less expensive option when it comes to the bottom line.
  • Increase inventory: The standard practice of relying on “just in time” shipping is unsustainable in today’s current climate. Keeping track of stock and anticipating inventory needs to order well ahead of schedule will remain critical. Although potentially costly, increasing inventory can help guard against an unstable supply chain and mitigate unexpected increases in shipping costs.
  • Utilize existing resources: Look to areas of the business that can be utilized in new ways or to repurpose. For example, an empty building can be converted to additional storage. Another option is paring down in one area and diverting those funds to rent additional storage space.
  • Creatively recruit: Keep in mind, without a staff to stock and sell it, inventory means very little. Small businesses might not be able to offer the higher wages of larger companies but there are creative ways to draw talent and remain competitive like the ability to offer flexible schedules, reduced hours, or work from home opportunities.

Learn more about operating challenges with inflation, supply chain, and labor.

However, ramping up inventory, diversifying products and suppliers, or renting additional storage space requires an additional investment that many small businesses cannot afford after months of struggling to generate revenue at pre-pandemic levels. This is particularly true if cash reserves have been depleted due to rising costs.

For these businesses, exploring financing options such as a business line of credit or an SBA loan might be a good next step to not only help offset pandemic-induced shortages but also to help with post-pandemic business planning.

  • Business Line of Credit (BLOC): A business line of credit provides a business owner with short-term funding for operational expenses without fees and higher interest rates from other financing options. It also ensures immediate access to funds to spend where needed, whether on inventory, products, payroll, or supplies. Similar to credit card payments, these loans allow companies to pay interest only on money actually spent. The funds are typically available within a couple of weeks and can be accessed at any time, and as often as needed.
  • SBA: The U.S. Small Business Administration helps small businesses secure loans by giving the government’s guarantee to loans made by commercial lenders. There are several options available, including an SBA 7(a) Loan that can be used for many purposes, an SBA 504 Loan to fund specific projects, or an SBA Express Loan, which is typically available a little faster than the other two options.

There are ample resources online about financing options for small businesses, and research will be key in making the right choices. Speaking with an expert, such as a business banker, who can help evaluate an organization’s specific needs, and walk business owners through the tools and solutions that can best address them, is highly recommended.  

Although small businesses will likely continue to feel the ripple effect from global supply chain woes in the months ahead, all is not lost. Those who have survived the last two years of nearly constant disruption have been proven to be nimble, adept at managing change, and committed to a constant state of evolution. With two years of key learnings left in the pandemic’s wake, these companies will be even more prepared for the challenges they are certain to face in the future.

And, who knows, maybe this disruption will kick start a greater reliance on U.S. manufacturing, creating more jobs, and driving the economy forward in new and exciting ways – all thanks to small businesses who survived the this once-in-a-lifetime pandemic.

Learn more about business line of credit and how they can help small businesses succeed.

Learn more about SBA loans or to request information or schedule an appointment.

#  #  #

Sources not otherwise noted: