A few years ago, shortages and shipping delays were the main challenges businesses faced when managing their supply chains. Today, the challenges look a little different.
Many of the widespread disruptions businesses experienced during the pandemic have eased, but uncertainty still remains. Changing tariffs, fluctuating costs, geopolitical events, transportation issues, and problems with individual suppliers can still quickly affect the price or availability of the products and materials businesses depend on.
For small and midsize businesses, carrying significantly more inventory or completely rebuilding a supply chain may not be practical. Fortunately, there are some relatively simple ways to reduce risk and give your business more options when problems arise.
Start by Finding Your Biggest Vulnerabilities
Before adding suppliers or increasing inventory, take a closer look at where your business is most exposed.
Which products, materials, or components would be hardest to replace if they suddenly became unavailable?
Pay particular attention to:
- Items purchased from a single supplier
- Products with long lead times
- Imported goods affected by changing tariffs or transportation costs
- Materials that are essential to keeping production moving
- Items that don’t have practical substitutes
Not every purchase requires a backup plan. Focus first on the ones that could interrupt your business if something went wrong.
Build a Second Source Before You Need One
Take the time to identify and develop a relationship with an alternative supplier.
A secondary supplier may not always offer the lowest price, but having another source can become valuable when your primary supplier experiences a delay, changes pricing, or can’t fill an order.
For Mid-Ohio manufacturers and other businesses that depend on specific materials or components, it may also be worth exploring domestic or regional suppliers. Shorter supply chains can sometimes reduce transportation time and give you another option when your usual supplier can’t deliver.
Know When Buying Ahead Makes Sense
For some businesses, reducing supply chain risk may mean keeping more of certain items on hand.
If you know you’ll need a material over the next six months and pricing is favorable today, purchasing a larger quantity may protect against future shortages, price increases, or longer lead times.
But buying ahead isn’t always the best for your budget, nor is it always possible.
Inventory ties up cash. It also requires storage and may increase the risk of damage, or you may end up with more than you need.
Before placing a larger order, consider:
- How predictable is demand?
- How quickly does the inventory turn?
- Is the product likely to become outdated or obsolete?
- What will storage and insurance cost?
- Is the volume discount meaningful?
- How would the purchase affect cash available for payroll and other expenses?
The right inventory level is a balance between having enough to protect the business and having too much cash sitting on a shelf.
Consider the Role of a Line of Credit
Sometimes the issue isn’t finding inventory. It’s having the cash available to buy it when you need it. Rather than using a significant portion of operating cash to make a larger inventory purchase, a line of credit may allow a business to take advantage of favorable pricing, secure important materials, or place an order earlier than planned.
Before borrowing, compare the cost of the line of credit with the potential savings of buying ahead or the cost your business could face if you don’t have the inventory you need.
Look Beyond Price When Evaluating Suppliers
The lowest-cost supplier isn’t always the least expensive supplier in the long run.
Reliability matters too.
When evaluating existing or potential suppliers, consider lead times, delivery history, communication, financial stability, location, minimum order requirements, and the ability to respond when demand unexpectedly changes.
Paying slightly more for a dependable secondary source may be worthwhile if it reduces the risk of downtime or lost sales.
Build Flexibility Before You Need It
You can’t predict the next supplier delay, price increase, or shipping problem. But you can make sure one problem doesn’t leave your business without options.
Review your most important suppliers and identify alternatives. Look carefully at inventory levels. Know how much cash you have available should an opportunity (or a problem) require you to purchase inventory sooner than expected.
A little planning now can make it much easier to respond when conditions change.
If you’re considering a larger inventory purchase or wondering if a business line of credit could help, the team at First Citizens National Bank can help you look at the numbers and determine what makes sense for your business.
