Covid-19 has disrupted the supply chain by shutting down manufacturers and suppliers in China, the United States and elsewhere. This post suggests five ways to overcome this challenge.
Overcoming disruptions in the supply chain
Diversify suppliers. Diversification sounds easy, but finding an alternative manufacturer or distributor can be difficult depending on the product. An alternative outside of China for clothing or kitchen utensils is relatively simple. For example, India, Peru, Bangladesh, Ecuador and Turkey have alternatives.
But if a merchant imports electronics, the options outside of China (eg South Korea, Japan) will cost 150 percent more. Diversification can still have unintended benefits, such as shorter shipping times, lower customs duties and cheaper return and reimbursement costs.
Diversification of suppliers is similar to new production with one exception: the merchant already has suppliers and will usually choose another region to reduce the risk. In addition to geography, critical factors in choosing suppliers are price, quality and lead time. Large merchants have volume requirements.
Sources for alternative providers include Amazon Business, Alibaba and country-specific websites, such as IndiaMart. I addressed supplier options several years ago on "20 Leading Global B2B Exchanges."
Consultants can also help investigate a seller's requirements and compile a short list of possible alternatives.
Collaborate with diversified manufacturers and distributors. Covid-19 harms China-based manufacturers and distributors. Many are now planning to diversify outside of China themselves. Some have already done so because of the increased labor costs in China and the proximity to raw materials, which opens facilities in, for example, India, Vietnam and Cambodia.
For merchants, the use of a diversified supplier reduces risk (and effort) while transferring responsibility for price, quality and service to a company. Check with existing manufacturers and distributors if they have diversified operations.
… using a diversified supplier reduces risk (and effort) while transferring responsibility for price, quality and service to a company.
Use level providers. Many major retailers have stock of suppliers. This is different from fully diversifying, as the Level 2 and Level 3 options usually focus on tactical compensation.
For example, say that the product packaging unit for a Level 1 supplier stopped working. It may cause a retailer to contact a nearby tier 2 supplier to use their packaging unit. Level providers usually have to work at short notice. Therefore, a merchant cannot choose suppliers with a level that requires a longer lead time.
Replacement products. Another alternative for overcoming supply chain disruption is to launch new products. Start by analyzing the customers' purchase history and then select complementary or similar products. For example, a merchant who sells female clothing can sell handbags.
Keep surplus stock. Traders usually avoid buying too much stock. But a "just-in-time" strategy does not work when suppliers cannot ship the products. Even smaller merchants can benefit from investing in surplus stock (and storage) to meet demand.