I recently walked into my local pizza shop to pick up a pie for a friend. While I waited, I got chatting with the owner. His pride and joy used to be having pizza boxes with his logo and name on them. The pizza boxes were a representation of his shop and everything he had worked so hard to achieve as a business owner. Sadly, he can no longer get them due to supply-chain issues.
Now, he delivers pizza in whatever boxes he can get his hands on. The size and color don’t matter anymore, he’ll take whatever he can get.
He used to have two sources to order food from, but one had to consolidate its small accounts (due to its own issues), and now he has only one. This means that he has no backup or leverage anymore if it is unable to provide what he needs.
Prior to the pandemic, we took these “luxuries” for granted. We always assumed that we would be able to order enough boxes and food to keep our doors open–until we couldn’t. Where do business owners go from here, and how do we hedge against these types of threats in the future?
To answer this question, consider the stories of two small business owners I saw respond quickly to the issues they were facing:
I spoke to the CEO of a cabinet and door installation company recently to get his take on the current supply-chain issues and see how his industry was responding. Not only were materials harder to get, they were twice, if not three times, as expensive. Parts that were being shipped to the U.S. were sitting on cargo ships, because there weren’t enough workers to unload them. The specific glue that was used to put together the cabinets became backordered for months when one of only two plants that manufactured the glue burned down in a wildfire.
It would have been easy for the CEO to throw up his hands and accept that this is how it would have to be for the foreseeable future.
However, like a true entrepreneur, he didn’t accept that. He realized that all these supply-chain issues were highlighting weaknesses in his own business. The CEO decided to start manufacturing his own product in order to avoid those same problems in the future.
Luckily, the business already had a line of credit and balance sheet that was set up for success. It started ordering all the materials needed to manufacture its own products in bulk–way more than what it actually needed to fill its orders. Then, when the shipments did come in, it had more than enough to fill the orders, have substantial inventory stored for the future, and sell the leftover to other companies still struggling with the supply chain.
The second story is about a friend who owns a shoe store. He told me that his response to the supply shortage was upping his inventory from two shoes in each size to 10. Why? Production on a part of the shoe was halted when the factory faced supply-chain issues. He immediately had the foresight to stock up on the shoes in order to have them when no one else could get them.
While every single risk to your business can’t be mitigated, there is something to be said for those entrepreneurs who are always thinking one step ahead. Your success depends on taking on these issues proactively and coming out ahead on the other side.
Some of you may be wondering how those entrepreneurs had the cash on hand to accomplish these investments, and the answer is simple. You don’t have to do everything through cash flow. Have a line of credit or asset-based line for emergencies and opportunities that arise. If this pandemic has taught us anything, it’s that we don’t know what’s right around the corner.
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