The disruptions of the past several months have forced companies of all sizes to look closely at how they conduct business.
Perhaps no other part of the economic engine has faced more uncertainty than supply chains. From toilet paper and cleaning products shortages that led to empty shelves and desperate consumers, through numerous travel and transportation restrictions that grounded planes and docked ships, and finally to international disagreements that have ratcheted up economic tensions, supply chains have faced one challenge after another.
But as with any good challenge, opportunity is hidden within. In this case, businesses have had the opportunity to rethink their supply chains to help minimize these kinds of disruptions(opens in new tab) in the future.
Much Needed Dress Rehearsal
During a recent Oracle NetSuite Open for Business event(opens in new tab), Tiffany Krumins, founder of Ava the Elephant, a manufacturer of interactive medication dispensers for children, said that COVID-19 and the series of events that have dovetailed with it have given businesses a much needed dress rehearsal for worst-case scenarios. And while it’s been a first-time experience for everyone, Krumins suggested that there’s no excuse for being surprised if another anticipated wave of infections hammers the U.S. this fall and winter.
“We do now have a crystal ball,” Krumins said. “Now we’re prepared if it does hit on a much bigger scale.”
For instance, Krumins said that when the pandemic hit, it immediately became apparent which products Ava the Elephant could turn away from and which ones would sell even during such unpredictable times. Even better, because of the way she’s set up relationships with suppliers, she can effectively share that data with her suppliers to keep them informed, rather than making orders and cancellations in reaction to changing conditions.
“I appreciate that clarity,” she said.
What’s more, Krumins—who started the business in 2009 with a $50,000 infusion after winning the inaugural episode of the ABC show Shark Tank—strongly recommends not over-relying on any one supplier. She said she made that mistake early on, and just as Ava the Elephant was benefiting from its first big wave of attention, a problem with that supplier led to product shortages. Since then, she’s made a point to constantly look for and form ties with new suppliers, which has given her peace of mind.
“Make sure you’re developing those relationships consistently,” she said.
Look for Low-Hanging Fruit
Revival Parts, a startup that specializes in vintage motorcycle components, felt the supply chain impact of COVID-19 when air shipments from Asia simply stopped. The company found itself low on a key product with no option other than to wait on ocean shipments, which involve much longer lead times.
Jerry Marks, director of business analytics and project management, said the company shifted its focus to long-term orders, ensuring that it had orders into suppliers for every item that was out of stock. Meanwhile, Revival had already moved its design and prototyping activities from Taiwan to the U.S., a move that cut its development cycle from a year to three months, putting additional pressure on the supply chain.
Marks said he’s found that simply talking with suppliers when delays start to occur often helps immensely, much like being a vocal consumer does.
But Marks recommended that companies look for low-hanging fruit—parts of the supply chain where obvious hiccups are occurring—and then start measuring and asking questions such as “why haven’t we ordered this?” or “why do we have so much of that?”
For instance, Revival did this to address some purchasing habits that that were affecting sales. By simply measuring some key indicators, sharing those metrics and asking obvious questions, the company was able to reduce lost sales by 60 to 70%.
“When you put metrics around the purchasing team, you see behavior change,” said Marks. “What we’ve seen happen to our company over the last 12 months after putting those metrics in place has changed the trajectory of our business.”
In Search of Peace of Mind
Dairy-free ice cream-maker NadaMoo! saw supply chain issues arise on both the supply and demand sides. Not only was the company experiencing delays in obtaining ingredients, but it also saw retail grocery demand for its products spike, and its distributors couldn’t keep up.
CFO Javier Alarcia (who also serves as COO) shared a number of steps the company took. Even before the pandemic took hold, the company was working to establish supplier redundancies with a goal of having at least two or three suppliers of every product. Then, as COVID began to ravage the economy, the company started reaching out to its suppliers every week or two to talk about any supply chain problems that were arising, which enabled it to manage delays more effectively.
Having clear data from NetSuite also helped Revival better manage its inventory levels and to forecast as well as it could despite the difficult global circumstances. These steps helped to minimize disruption to the business.
Additionally, the company benefited from another habit: it always tries to negotiate prices for products from its suppliers at least six to 12 months in advance, in the process committing to purchase a certain amount of product for the duration.
“That blanket PO makes them comfortable, and it gives us peace of mind where we can guarantee supply for a certain amount of time,” said Alarcia.
Anything Can Happen
Such commitments, he said, also give the company time to find other options should interruptions with that supplier become inevitable. But in a market as unpredictable as it is now, anything can happen, so NadaMoo! has taken the additional steps of securing as much cash as it can from investors and lenders.
Alarcia believes this gives the company much more flexibility during tough times, even if it has to absorb interest payments.
One other step the company has taken is to look for an alternative to the one Asian supplier it relies on for a particular ingredient. NadaMoo! has been in talks with one of its Mexican suppliers to explore not only whether it can provide the ingredient in question, but perhaps even blend it with ingredients it’s already providing. It’s the kind of arrangement that speaks to Krumins’ point about maintaining strong relationships with suppliers.
And that may be the most important theme to emerge from listening to these business decisions makers: No matter the disruptions, and no matter the tools and data at one’s fingertips, keeping supply chains running is as much about relationships as anything. Whether a shipment is late, demand is falling off or revenue is running short of projections, the more companies communicate with their suppliers, the less likely problems will mushroom out of control.
It’s really no different than any other challenge human beings face.
Said Alarcia: “People are usually pretty understanding.”
Watch the full virtual event on How to Build a Resilient Supply Chain(opens in new tab).