With the change in demand for many types of small businesses, and are you managing your supply chain needs properly?
“There needs to be an alignment between the sales forecast and the operations to make sure the demand is known by the operations team,” says Lucie Le François of BDC Advisory Services. “There are going to be a lot of changes, so you need to be flexible in creating and implementing your plan.”
Here are six suggested steps for small business entrepreneurs who want to minimize risks in the current crisis:
1. Prioritize with your team
Gather your team leaders from sales, purchasing, production, logistics and financing for daily operations meetings to provide alignment, prioritize and ensure operations can continue during the crisis or restart once it is over.
2. Forecast demand and customer expectations
To help forecast sales, inventory purchases and predict cash flows, contact customers to determine their needs in the coming weeks.
Simplify your product range to reflect the highest turnover products based on demand.
3. Get a firm grip on real-time stock levels
Next, look at your current inventory levels for various types of goods:
- raw material and inventory that’s ready to be transformed
- work in progress (WIP)
- finished goods
Lucie Le François says, “Many companies don’t have visibility on their current stock level,” She also added, “Yet it’s critical right now to know what you have on hand and to classify it according to its importance. It will help define priorities, establish what is available for production and sales, and also help assess out of stock risks.”
One easy way to classify items in your inventory is to complete an ABC analysis. Using the 80/20 principle in that 20% of your stock accounts for 80% of the value of the business. Focus on A products that will have a significant impact on your operations.
- Category A—Items you can’t afford to be out of stock ever “your bread and butter”
- Category B—Items with lower sales or use but that you must still keep in stock
- Category C—Low-volume items with high carrying costs that will not make a large contribution to your bottom line
Some companies might be tempted to hold onto more stock than usual because of volatility, but this risks tying up your cash into inventory that can’t be moved.
Flow-through is indeed part of the new normal.
4. Evaluate inbound and outbound supply chain flows
With a better idea of what you want to produce or distribute, the next step is to identify risks across your supply chain.
Break down your supply chain into inbound (how resources get to you) and outbound (how products get to your customers) risks.
Inbound risk analysis
- Will suppliers be able to supply materials?
- Are lead time delays in effect?
- If suppliers have shut down periodically, can you expect the same quality once operations resume?
Sourcing contract renegotiations
- Do payment terms and conditions need to be renegotiated?
- Will previously agreed delays and quantities need to be changed?
Transport, and inbound shipping
- Will there be delays at the border?
- Have international suppliers been disrupted?
- Will quantities or transport methods need to change?
Storage / Receiving
- Do you have staff in place to receive shipments?
- Are they be willing to handle materials coming from infected areas?
Outbound risk analysis
- Do you have ample storage capacity?
- Can you handle fluctuations properly?
- Do you need to change or adapt your packaging to meet new safety regulations?
- With B2B businesses, can you sell directly to customers?
Transport and outbound shipping
- Are trucks and drivers available to deliver shipments?
- Do you need to change transport modes to accelerate shipments?
5. Put contingency plans in place
Now look for ways to mitigate risks that have been identified, and prioritize by the level of risk.
In order to adapt, many businesses are shipping in smaller quantities to allow for more flexibility. Still others are turning to brand new modes of transports.
In this changing competitive market, businesses should be looking for alternative suppliers. Especially those that have the insight and realize the opportunity to serve you better.
6. Always be communicating, and think strategically
As this crisis rolls on, it’s important to remain strategic about the choices you make.
Ali Lajevardi, Director of Business Development BDC Advisory Services says, “Even if we don’t know how long this crisis will last, we can be sure it will create new operational and supply chain norms, with technology, more than ever, being at the centre of it all,”.
Because of the fluid nature of the situation, he also stresses the importance of keeping daily communication channels open with your clients, partners and suppliers.