The year 2020 was a perfect storm that disrupted the global supply chain. Ports around the world had to shut down, and the all-important Suez Canal was blocked for days [1].
Meanwhile, e-commerce boomed: the value of global merchandise trade rose 22.4% in 2021 compared with the previous year and up 15% on pre-2020 levels [2]. Small businesses, which didn’t have the resources to stockpile or compete with the buying power of bigger companies, suffered shortages in ingredients, components, packaging, and warehouse space. In short, we saw demand exceed supply.
This article will discuss the effects of recent supply shortages and suggest five ways small businesses can manage if demand exceeds supply.
1. Understand the shortages likely to impact your business
When supply chain challenges start to bite, business owners must analyse the likely impact on their bottom line before taking action. “You need to do one important equation: how much stock can you hold without putting too much stress on your business,” says Lucinda O’Reilly, founder of The International Trade Consultancy, which helps British exporters and manufacturers navigate supply and demand issues.
While it may be tempting to stockpile, it’s not always the most prudent option from a financial perspective. “At a certain point, it’s actually not worth holding enough stock to fulfil a spike because of the warehouse costs, interest, and the amount of capital it ties up,” says O’Reilly.
When international flower delivery company Bloom & Wild began seeing the impact of country-specific lockdowns around the world, founder Aron Gelbard acted quickly to mitigate the impact of shortages. “Lockdown created a spike in sales,” he says. “Our products were being used as a substitute for a hug.”
The company produced detailed forecasts to predict what sales would look like at various levels of social restrictions and cut promotions and marketing activity to slow the rise in sales until the business could re-engineer its product offering to prioritise readily-available flowers.
2. Be smart with your product range
At Bloom & Wild, smart algorithms help the business promote or “hide” products on its site depending on availability. This technology helps avoid customer disappointment when demand exceeds supply on certain lines. Optimised IT like this, with strong data and analytics capabilities, is invaluable for both understanding demand and mitigating the impact of supply disruptions.
For businesses without the financial means to invest in this type of technology, keep a close eye on demand and find ways to divert it towards products with more sustained availability, and adjust your product range to match the stock you have available.
Simon Midwood, managing director of building supplies firm TIMCO, describes how his company made more manual – but no less effective – changes to drive customers to the right product areas. “A lot of our customers began shopping online with us for the first time during the pandemic,” he says, “so we used the website to generate recommendations and cross-selling opportunities.”
3. Review existing production processes
When demand for flowers exceeded supply, Gelbard thoroughly reviewed his production processes. “You can’t just magic more flowers – they take time to grow,” he says. “Our bouquets typically contain stems from different places, but we re-engineered them so that all of the stems [within a bouquet] came from the same country.” This change meant that Gelbard could withdraw a single product if there was a sourcing issue without any others being affected.
Because Bloom & Wild has direct relationships with growers, Gelbard was able to ask them what challenges they were facing. For example, many UK supermarkets had stopped buying flowers, leaving his suppliers with excess stock of tulips. Gelbard adjusted his own product offering to help them sell those flowers. This helped his suppliers, but also allowed Bloom & Wild to grow during the pandemic: sales rose four-fold between 2020 and 2021.
O’Reilly adds that another helpful adjustment is to look for opportunities to streamline packaging across your product range. “Look at whether you can make your packaging more generic,” she says. “Could all your products come in similar packaging? If so, you can swap if one product starts selling out. That way, you also benefit from much better buying power with larger volumes.
Remember that you earn 1 Membership Rewards® point for every £1 spent on the American Express Business® Gold Card. These valuable points can be redeemed as statement credit – allowing you to free up cash despite buying in larger quantities¹.
4. Review your entire supply chain strategy
The global supply chain is firmly in the spotlight, which means that it has become an even more prominent part of the business conversation. O’Reilly advises small business owners to make the most of this opportunity to drive real change in their supply chain strategy.
Talk to suppliers about their crisis scenarios. Ask the question: “What happens if we suddenly need to double our order?” It is also a good time to investigate alternative options when it comes to ingredients and packaging.
“The cost of anything plastic has gone through the roof because of rising oil prices,” says O’Reilly. “Can you move to a different material? Or start looking at the byproducts of other manufacturing processes?” A good way to find out whether someone else’s trash could be your treasure is to speak to your trade association, which may be able to advise on alternative sources.
Smooth payments are crucial during times of peak demand. You need to pay suppliers quickly to ensure prompt delivery, but also need to keep your cash flow stable so you can remain agile. To benefit from flexibility during these times, the American Express Business Gold Card has a payment period of up to 54 days².
5. Seek out fresh opportunities
Both Bloom & Wild and TIMCO have used experiences of sales spikes to grow their businesses. According to Gelbard, seeing demand exceed supply gave him the confidence to expand overseas: he has since acquired two companies to move into new markets. The acquisitions have brought 200 new growers into his fold, which means the business can expand the breadth and variety of flowers on offer and in turn gives customers a better service. He has also launched a new flower subscription service, which provides stable, recurring revenue.
At TIMCO, Midwood is investing in an extra 100,000 sq ft of warehousing space to hold its stock and become a dropshipping partner to other building companies. “This is a big opportunity for us,” he says. “20% of the business is now dropship.” Midwood is also investing in automation to futureproof his business. Robots will help make the picking and packing process more efficient, helping TIMCO accelerate growth.
If you’re facing a scenario where demand exceeds supply, are looking to optimise your supply chain management, or even unearth new opportunities, these five steps will be a solid foundation for your next move.
1. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
2. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. The American Express Business Gold Card has an annual fee of £195 (£0 in first year).
3. If you’d prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Basic Card.
Sources
[1] Lloyd’s List, Suez Canal Remains Blocked Despite Efforts to Refloat Grounded Ever Given
[2] UNCTAD, Global merchandise trade exceeds pre-COVID-19 level, but services recovery falls short
