Many businesses had to deal with periodic supply chain related issues in 2021, and I think we will still be seeing some of these until at least second quarter of 2022. I don’t think they will only affect companies manufacturing or selling goods, since service-based companies need to use things, like computers, that have also been affected and may be in shorter supply.
Basic economics predicts that when supply is lower than demand, we can expect pricing increases. And pricing increases can have a major impact on your profitability. So how do you manage the impact of the supply chain issues you may face in 2022? Here are a few ways to plan for and handle potential disruptions and price increases related to supply chain issues.
Be Proactive
In global economy such as ours, the items we use on a daily basis are almost universally interrelated. The chip in your computer – or the one in your delivery van – may come from overseas even if it was manufactured in the US. And while transit times may be dropping here, manufacturing or transit delays on the other side of the globe may be affecting your supply chain.
Keep an eye on the inventory of the goods you sell or raw materials you need, and project your needs as far as possible into the future. Do this carefully so you don’t overspend and inadvertently create a cashflow issue. Your accountant should be able to help you look at past usage and predict future needs.
Whether you need a steady supply of raw materials to manufacture your products, or need to ensure that your employees have access to working computers and other technology, being proactive and having a backup plan is always a good idea. Most companies will immediately think of purchasing an extra [fill in whatever you can’t be without here], and while buying in advance of actual need may be a good idea, it’s not good if you create a cashflow issue when you do.
Avoid Cashflow Issues
Frequent consultation with your accountant is a great way to avoid cashflow issues, and respond to them quickly if they happen. Your accountant can also help guide you in assessing your inventory and projecting what you will need and when. And don’t overlook the condition of items like computers, but before buying that spare consider other ways to replace or repair things without impacting your cashflow.
Right now, creating alliances with new sources is a great idea. You might even want to consider sourcing things from within the US that you typically get from overseas. The cost of overseas production and manufacturing may still be lower than in the US, but cargo rates have skyrocketed. Many companies are finding onshore costs are about the same as overseas costs with the increased cost of shipping. And always negotiate for the most favorable terms and rates possible.
This is one of those times when you really need an accountant that acts as a partner in your success. If you don’t have one, we’d be happy to help. Set up a quick, 15-minute call and let’s talk about how Hundley Advisors can make a difference in the profitability of your business.
