For years, just-in-time inventory management has been the preferred method. The idea of just-in-time is to order and get material as close to the time it is required as possible, freeing up money to reinvest elsewhere. This plan may have been rendered ineffective by the COVID-19 pandemic’s unexpected economic shock and its impact on international supply networks. It has been decided to disregard the idea of just-in-time inventory. In the current environment, maintaining uninterrupted output is the key to success.
How supply chain issues affect enterprises
Higher inventory levels
Companies now carry a lot more inventory than they did previously because of unreliable supply chains. Because they can’t afford a breakdown in the middle of the work season or to wait the now-typical eight to twelve months for parts to arrive, construction companies, for instance, are pre-ordering expensive components for their heavy equipment.
Increased production times
We’ve observed instances when manufacturing firms have been compelled to store unfinished goods as they await the arrival of a crucial final component, frequently following substantial down payments on supplies.
Order delivery times that are too long
The purchase cycle, which once took three to four months from the time of the order to manufacture, shipping, and receipt, might now take six to nine months or even longer. This might cause capital to be locked up for extended periods of time and generate business uncertainty.
Erroneous invoice timing
After things are backordered repeatedly, surprise shipments have been known to arrive unannounced leaving businesses with a hefty charge they weren’t expecting.
Shortages of personnel
Businesses are suffering from supply chain interruptions at a time when the unemployment rate is at an all-time low. Production is sluggish and the flow of products and services is disrupted by the lack of workers.
Not being able to finish a job or sale
Companies are holding on final invoices for months because they are unable to complete a project because they are awaiting a little but crucial component.
The cost of goods has skyrocketed across all industries. When a $5 widget is now worth $25, it can mean the difference between a lucrative and unproductive period.
Problems with cash flow and supply chain interruptions
Due to the money being held in inventory or work in progress, obstacles like these cause cash flow issues. Regardless of the sector you work in, they can also lead to more stress and have an impact on your capacity to submit, accept, and complete new project bids.
Practical techniques that could shield you from supply chain unrest
1. Protect your productivity proactively
It has been decided to disregard the idea of just-in-time inventory. In the current environment, maintaining uninterrupted output is the key to success. This entails taking proactive measures to guarantee that your services or goods are produced continually.
Proactive strategies include:
- Maintaining bigger inventory than you always did to make sure you’re prepared for a surge of orders, a shipment delay, or equipment malfunctions.
- Hiring experts in procurement. One of our clients has assembled a supply chain management team that is comprised of a supply chain manager, an international freight coordinator, a domestic logistics coordinator, and a procurement coordinator. Each employee concentrates on one crucial step of the supply chain process, communicating with numerous suppliers and staying on top of freight and other issues unique to their field of expertise. As a result, the system has become more reliable and capable of addressing issues at every stage of the supply chain.
- Requiring fixed-price contracts for building projects. Many builders have increased their quoted prices by 10% as a result of rising building material costs. By securing prices for parts and projects from your suppliers up front, you can eliminate this kind of guesswork and any unexpected surprises.
2. Upgrade your organizational procedures
Are you operating your company as efficiently as you possibly can? We’ve seen that most companies might benefit from internal process improvements to save costs and boost efficiency. With these adjustments, you might be able to overcome present supply chain difficulties and boost your long-term competitiveness.
3. Make your business digital
Are you maximizing billing, quoting, sales, procurement, and inventory management using technology? Automation of these procedures using specialist software makes them all quicker and more effective.
4. Evaluate the viability of each good or service
Due to supply chain hiccups or growing costs, your company’s yesterday’s blockbusters can be holding you back today. We counsel companies of all stripes to assess the profitability of each good or service to comprehend their return on investment. By permanently or temporarily altering what you sell, you can frequently increase cash flow.
5. Find ways to improve operations
We frequently discuss with our customers the little inefficiencies or redundancies that, when fixed, can result in significant savings.
6. Speak with your lenders
The financial products you utilize should change along with your business. Sitting down and talking about supply chain issues and what your existing banking institution can do to address them can be useful. Even though not all banks offer inventory finance, it’s crucial to look into your possibilities both inside and outside of the realm of your existing service providers.
7. Determine whether you need more money
To make sure you can pay your payments as they come in, keeping a tight check on your working capital is more important than ever. Normally, there is a steady stream of money coming in from receivables and going out to suppliers.
Supply chain issues may cause your cash flow to be slowed down or tied up in excess inventory. You should estimate how much operating capital you will require in the upcoming months, as advised.