4 Ways to Protect Your Business from Supply Chain Disruptions

If your business relies on the movement of product, supply chain disruptions can be serious and costly events. In 2019, the global trade value of goods exported throughout the world reached almost US $19 trillion. Now, with pandemic-related interruptions negatively impacting 75% of businesses, many companies are determined to make their stock and delivery systems more resilient.

Here are 4 ways you can potentially protect your business from future supply chain disruptions.

1. Avoid taking an eggs-in-one-basket approach

As we’ve clearly seen, impactful supply events can and do happen—even if they’re as low-level as your key vendor shutting down unexpectedly.

Diversifying the source of your products, parts, or raw materials as much as possible will prevent you depending on a single supplier or a handful of dealers to sustain your inventory requirements.

If it costs your business a little more to deal with certain suppliers, it’s worth carefully weighing that expense against the cost of not having reliable access to the product you need, when you need it.

2. Take advantage of tech

If you don’t currently use an automated platform to help run your business, you may want to consider investing in one.

Inventory management software, for example, is a great tool for gaining real-time visibility into your eCommerce company’s:

  • Shifting inventory levels
  • Customer demand and fulfilment capacity
  • Stock orders and delivery times

Because it integrates data from customers, suppliers and sales, inventory-related tech can help you monitor and manage your supply chains more efficiently.

3. Stock up on stock

Do you have access to dedicated storage space in your home, at your place of business, in a local storage locker facility, or as part of a warehousing solution? If so, it could be worth stockpiling your most popular products, or the parts and materials that are crucial to the goods that you make.

Retailers, B2B sellers and eCommerce entrepreneurs, for example, might start by carefully analyzing buyer demand to identify high-priority customer segments and needs.

At the same time, if you typically fill customer orders directly, you may want to think about working with a fulfilment centre as well (or instead) to achieve a greater capacity for housing large volumes of product in strategic locations.

4. Create a supply chain emergency plan

One of the best ways to protect your business from a supply chain emergency is to be financially prepared in the event that one happens.

You can make a plan to guard against inventory disruptions, for example, by using your company’s financial data and accounting reports to:

  • Figure out your cash runway (the amount of time remaining before you run out of money) at any given time
  • Pin down and collect outstanding amounts owing from customers
  • Obtain a line of credit, or determine if you’d qualify for a short-term loan if need be

One useful metric you may want to put to work is the inventory turnover ratio.

By dividing your cost of goods sold (COGS) for a given period by your average inventory during that time, you can calculate the rate at which you replace inventory due to sales. The inventory turnover ratio is a good way to gauge demand for your product and see how well you’re managing your stock.

More often than not, effective cash management will be your best bet for weathering a supply chain disruption.

If you don’t know what cash flow is, how to read your financial statements—or whether it’s a good time, cash-wise, to switch from just-in-time inventory practices to stockpiling product—you should seek advice from your professional accountant.

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