This week, I finally started experiencing the supply chain disruptions firsthand. I went to Costco for my family with five things on my list. As I went from aisle to aisle, a familiar pattern started to develop, “sold out, out of stock, 1 per customer.” By the end of my trip, I still had nothing. I began to think, how are businesses supposed to succeed in a market where they can’t get the supplies they need to function? While there is no full-proof method to avoid all hiccups that will inevitably happen in your supply chain, there are a few things that I recommend to every entrepreneur.
First of all, diversify who you get your supplies from. Only utilizing one supplier is like putting all your eggs in one basket. If it fails, you’re done for. I remember talking to a client a while back who manufactured cabinets. One of the two plants that manufactured the specific glue needed to hold the cabinets together had burned down in a fire. Now, estimated wait times for the glue tripled. Before this occurred, the owner had no idea that the one company he ordered his glue from had only two factories. Unfortunately, we usually don’t start paying attention to our supply chain until there’s a problem, and then it’s often too late.
Another way to hedge against supply chain disruptions is by increasing your inventory. This is easier said than done if you don’t have the cash flow, but there are ways you can improve your cash flow situation. If your business has accounts receivable (A/R) and inventory, I suggest checking out an asset-based line (ABL). ABL’s allow you to borrow up to 80% of your A/R and 50% of inventory @ 4%-12%, depending on the company’s size.
Or, you could think about making changes to your line of credit. (If you don’t have one already, I suggest getting one). One option is trying to get your bank to increase your current line of credit. If you’ve had the line for a long enough time, odds are it’s time to improve it anyway. Another option many people don’t think about is terming out their line of credit. This will give you an extended period to repay and smaller monthly payments. Therefore, you are ultimately increasing your cash flow.
Finally, you could consider purchase order financing. PO financing is beneficial when a business has the opportunity to fulfill robust orders for a product that they may not have the cash flow to support. Whatever the reason may be, maybe they have been historically smaller and landed a big deal with a major US or worldwide supplier, it’s difficult to have to turn down orders due to lack of cash flow. PO financing could be the perfect tool to bridge the gap and get the magnitude of product required to fulfill those large orders.
Whichever method you choose to employ, remember that there are many ways to get creative when it comes to financing. Don’t let supply chain disruptions shake your confidence in your business. These disruptions help expose flaws that we can work to fix in the future. Your company just survived a global pandemic; it can survive this too.