Supply chains are the lifeblood of the world economy. And today, they are more intricate than ever— the result of relentless globalization and just-in-time shipping. But this complexity comes with a cost: susceptibility to disruption. According to McKinsey, “companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years.” As a business owner, you can’t overlook supply-chain resilience. And by reinforcing and adapting how you get your goods, you can protect your business operations and the environment.
COVID-19: The Great Disruptor
The last 18 months have seen a perfect storm slam global supply chains. It started with the coronavirus pandemic: shelter-in-place measures brought factories to a grinding halt, and many facilities were affected by severe outbreaks. Then there was the logjam in the Suez Canal, power-grid pandemonium in Texas, and an uneven recovery that saw the U.S. leap ahead of other countries in the economic reopening with a dizzying vaccination drive. Consequently, U.S. demand for goods and raw materials is skyrocketing as the recovery takes root, but many exporting countries are still grappling with COVID-19 and aren’t operating at maximum capacity. The result: supply chain bottlenecks and rising costs across the board.
Environmental, Social, and Governance (ESG) Considerations
At the same time, we are seeing the rise of ESG management practices. This concept has long been associated with the investment industry, but nowadays, it’s being applied more and more to all aspects of business, including supply chains. That’s not surprising, given the massive global footprint of sourcing, packaging, and transporting goods. Sourcing matters, and consumers—especially younger ones—are starting to pay attention. People are interested in what goes on behind the scenes: Is that coffee grown sustainably? Were the workers paid a fair wage? Is executive compensation outrageously high?
It isn't only consumers who are interested in ESG practices. Banks and other lending institutions also offer favorable lending rates to businesses with proven ESG practices. This is because reviewing your supply chain, business management, and other aspects of operations regularly can help a business identify issues before they become problems and pivot quickly to changes in its operating environment.
Time to Review Your Supply Chain
Against this backdrop, businesses need to pay attention to where and how they source their merchandise and raw materials. Here are some ways you can improve supply chain resilience and sustainability.
One way to make sure a crisis 5,000 miles away doesn’t keep your shelves bare is to source locally. If you run an apparel store, for example, you could look in your backyard to see a local producer can also meet your supply needs. Likewise, the pandemic has led Americans to rally around their communities and support neighborhood merchants, so customers will likely respond well to your selling local products. Furthermore, staying local reduces shipping costs, keeps money in the community, and helps maintain inventory levels. And there’s no reason you can’t add more suppliers to existing ones. A diversified supply chain is a resilient one.
Think ESG When Sourcing
The ESG movement is gaining momentum, particularly among Generation Z (those born between 1995 and 2010). This cohort prefers to support earth-friendly brands. Indeed, a recent Forbes article noted that Generation Z shoppers are willing to spend 10% more on sustainable products. In addition, this generation and millennials are most likely to base purchase decisions on ESG principles. Once you do take a turn towards greener products, maximize the impact by informing your customers that you're putting the environment first.
Optimize Your Supply Chain
Disruptions are inevitable. The best way to deal with them: be proactive. That means a nimble and responsive supply chain. Some ways to optimize it:
- Practice sound inventory management. If you know what your customers want and are buying, then you will be in a better position to predict future trends and plan stock accordingly. That way, when disruptions do occur, you’ll be better prepared.
- Build supplier relationships. A good relationship with your suppliers could mean the difference between fulfilled orders and bare shelves.
- Use several suppliers for one product. This one is self-explanatory, and we already touched on it. Relying on a single supplier is dangerous. As with an investment portfolio, there is safety in diversity.
Our recent supply chain disruptions, coupled with mounting environmental issues, provide a compelling argument for businesses to transform how they think about their suppliers. Geographical diversification means less concentrated risk while tapping local suppliers translates into fewer trucks on the road, cargo jets in the sky, and freighters on the sea. And your customers will also notice how you’re adapting. It’s a win-win situation.
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