Understand your supply chains
Identify alternative sources to supply items. Sometimes it is simple to find an alternative source, however, currently it may be difficult to find alternative sources of some unique components. Following is an approach to deal with such unique items.
- Start with the critical components. Work with your operations and production teams to review your bills of materials (BOMs) and catalog components. Identify the ones that are sourced from high-risk areas and lack ready substitutes. Developing a risk index for each BOM commodity, based on uniqueness and location of suppliers, will help identify those parts at highest risk.
- Assess the risk of interruption from tier-two and onward suppliers. This stage of planning should include asking direct questions of tier-one organizations about who and where their suppliers are and creating information-sharing agreements to determine any disruption being faced in tier-two and beyond organizations. Manufacturers should engage with all their suppliers, across all tiers, to form a series of joint agreements to monitor lead times and inventory levels as an early-warning system for interruption, and establish a recovery plan for critical suppliers by commodity.
Understand available inventory
Understand available inventory along the value chain, including spare parts and after-sales stock, that can be used as a bridge to keep production running and enable delivery to customers.
- Finished goods held in warehouses and blocked inventory held for sales, quality control, and testing
- Spare-parts inventory that could be repurposed for new-product sales. (Trade-off of reducing existing customer support versus maintaining new-product sales.)
- Rework parts with lower-grade ratings or quality issues, which should be assessed to determine whether the rework effort would be justified to solve quality issues or whether remanufacture with used stock could address supply issues
- Accelerate the arrival of shipped parts—particularly those in customs or quarantine
- Inventory supply currently with customers or dealers should be considered to see if stock could be bought back or transparency could be created for cross-delivery.
A crisis like COVID-19 may increase or decrease demand for particular products, making the estimation of realistic final-customer demand harder and more important. Businesses should question whether demand signals they are receiving from their immediate customers, both short and medium term, are realistic and reflect underlying uncertainties in their forecasts.
Clearly understand the production and distribution capacity to ensure employee safety, such as by supplying personal protective equipment (PPE) and engaging with communication teams to share infection-risk levels and work-from-home options. These steps will enable leaders to understand current and projected capacity levels in both workforce and materials.
Identify and secure logistics capacity, estimating capacity and accelerating, where possible, and being flexible on transportation mode, when required.
Manage cash and net working capital by running stress tests to understand where supply-chain issues will start to cause a financial impact. If necessary, look for loan deferments options with your lenders if needed and apply for a SBA disaster loan to bridge the fund gap.
- Not everything needs to be done by the entrepreneur. For example, shipping can be outsourced or negotiated with the distributor.
- Fedex and UPS deals can be re-negotiated for online shipping.
- Toll manufacturing of product can be a viable option if production is down for the time being.
- Request payment terms extensions from Net 30 - Net 60
- Consider moving to online sales for immediate payment on products to be shipped in future.
Contact your NH SBDC business advisor for more in-depth help or find your SBDC region and submit a request for service.
If you are a small business owner and you find time on your hands due to the crisis, or you need to expedite learning about a new topic for self-development via quality content, NH SBDC offers multiple free online classes.