Handling Supply Chain Challenges: 5 Things to Do Right Now

Most people have probably heard the Chinese proverb that says, “The best time to plant a tree was 20 years ago. The second-best time is now.” That saying is highly applicable to supply chain management . Creating a plan a decade ago would have been best — but it’s not too late. 

Companies of all shapes and sizes are facing supply chain challenges we couldn’t have envisioned just a few years ago. In many industries, inventory-to-sales ratios — an indicator of how much inventory retailers have on hand — are at or near all-time lows, according to Federal Reserve Economic Data (FRED) . The ripple effect involves rising prices, labor shortages and skyrocketing freight charges. And while some of the problems arose more recently, they’ve been brewing for years. 

The secret to overcoming supply chain challenges is planning ahead. Here are five ways to take action now: 
     
1. Diversify relationships. Having options is the No. 1 way to address supply chain issues, say our bankers. Shipping fees and timelines, ports of arrival (and their staffing), and materials cost and availability vary dramatically over time and geography. Contingency plans are vital, especially if a business relies on a single supplier or just a few. For example, a company may avoid business interruptions due to the supply chain by doing some manufacturing locally and some overseas.

2. Assess material needs. We anticipate that supply chain issues are likely to resolve in the coming months and years. Our bankers highly encourage retailers and manufacturers to assess products and materials and consider whether alternatives can do the same job. Diversifying ahead of time — or simply having a plan — can alleviate many issues. Companies may even find unexpected benefits, such as a more environmentally friendly solution that gets ahead of changes to local laws or offers a marketing advantage.

3. Reevaluate inventory standards. It can be risky to rely on just-in-time inventory levels. Many companies now require a backstock of excess inventory to compensate for supply chain-related delays. Take careful stock of your business needs, trends and sales projections. Then consider your storage facilities and credit limits to determine the optimal approach to being prepared. 

4.  Your business banker should be much more than just someone who processes a financing application. They can be a sounding board for a wide range of business issues. When it comes to inventory and funding, your relationship manager can sometimes adjust your advance rate and increase your line of credit to facilitate purchasing larger quantities of materials at one time. More broadly, your banker might even be able to help with business interruption exercises to help you visualize potential future challenges and devise solutions. 
 
5. Review payment strategies. One way to put your business in a stronger position in the face of supply chain issues is to make your money work harder for you. If your organization has grown or changed direction, your banker can help review your electronic and foreign exchange payment strategies to ensure they are on target. Using the payment methods best suited to your business can potentially help reduce payment-related supply chain delays. 

To learn more about how your banker can assist you in flexing with the supply chain’s ups and downs, contact your Western Alliance Bank relationship manager or find out more about what our bank can offer businesses like yours.