Global supply chain issues, increased transportation costs and shipping delays are an ongoing post-pandemic problem. How is that impacting businesses when failure is not an option? We asked EO members from various industries about the solutions and strategies they have implemented in response to these significant challenges. Here’s what they shared:
Take creative actions
“Our small business has absolutely been impacted by higher transportation costs and shipping delays. We’ve taken creative actions to mitigate the damage:
- Broken down pallets into individual boxes to secure shipping lanes because palletized air freight is being given to larger high-volume companies.
- Utilized lesser-used ports, other modes of shipment (air, rail), or a mix—to diversify the risk.
- Developed dual suppliers for critical items where we were previously dependent on a single supplier. We strategically put redundancy in the US in case of China lockdowns.
- Increased safety stock held at both our warehouse and suppliers, creating a buffer should certain items become unavailable.
- Secured supply for all of 2023, because our German-made materials may be impacted by the Russia/Ukraine war. The carrying cost is offset by buying 2023 materials at 2022 pricing.”
—Eric Griffin, EO Philadelphia, Co-founder and CEO, Mobile Outfitters
Adjust for margin impact
“In 2020, we paid US$6,500 for a container to be shipped and delivered. In 2021, the average cost was US$18,000 and at one point we paid US$21,500.
We manufacture our products in China; shipments were delayed by months and months because of Chinese port shutdowns and lockdowns. Next, our shipments were stuck at US ports because of worker shortages. As a result, we ran out of stock. Then, all of our shipments arrived at once instead of being spread throughout the year. Increased landing costs raised our overall product costs and made it harder to run promotions. Our margins dropped from 45% in 2020 to 25% in 2021.
As a result, we’ve had to forgo package design for some products, postpone hiring, and delay new product launches.”
—Shari Hammond, EO Austin, Co-Founder and CEO, INSP!RED Product Development Group
Partner with customers
“As a chemical distributor and manufacturer supplying raw materials to manufacturers of building materials and coatings (paint), shipping delays have caused lead times to extend up to four times what they used to be. Ocean containers that used to take six weeks are now taking three to four months or more. We have often had the same container booking pushed back multiple times due to capacity constraints and port congestion.
As a result, we now plan further out and hold more inventory than in the past. When we heard early rumblings about supply chain issues and raw material increases, we immediately made changes.
We now partner with our customers to plan 6-9 months (or more) in advance, and we reevaluate weekly. Increased costs and escalating lead times have impacted our profits negatively, but we have worked with customers to hold off on price increases as long as possible.”
—Brandon Bethke, EO Orange County, Vice President, Tempo Chemicals & Solutions
Think outside the box
“We provide non-dosed confection products to CBD/THC edible manufacturers—such as our meltable gummy base. Our products are made overseas, causing multiple challenges for our company and our customers.
When the pandemic hit and CBD/THC edible sales surged, forecasting was difficult because our customers’ sales were doubling or tripling, and we play a huge role in their production process.
We ordered different flavors and colors of gummy base scheduled for delivery in four months—which took over eight months! We had seven containers sitting at the port of Long Beach, California. When they finally arrived—all at once—we had to scramble to rent another warehouse just as warehouse prices spiked.
Here’s what we did: We created a colorless, flavorless gummy base—called Mary Jane Doe–to streamline the number of SKUs we offer and manage inventory more efficiently. That created an opportunity for our customers to add color and flavor to create any edible flavor they could imagine. It was a win-win! We had a slight price increase, but our clients supported us.
I learned how important it is to think outside of the box: Create something nobody has ever created, take a plunge and ride that wave. Failure is not an option. You have to diversify to stay afloat. That next product you develop might change your business forever!”
—Susan Hallak, EO San Diego, founder and CEO, CandyPros
“It has forced us to reconsider how we run our coffee product (coffee, syrups, cups, lids, etc) distribution business. In the past, we never wanted product sitting “on the shelf”. We did at least 26 turns a year on most product lines—some closer to 40 turns. In autumn of 2021, it became impossible to find cups and lids. During our five-month search for a reliable paper cup manufacturer, we lost roughly US$400K in real sales until we could restock cups. This breakdown and the continual supply chain issues (lids, currently) made us change our buying patterns.
We have doubled down on products and warehouse space, and now hold a 3-4 month supply on major product lines. We went from a US$50k average inventory hold to over US$250K inventory hold.
Transportation costs pose challenges on both ends. To offset the inbound charges, we buy in larger quantities and fill trailers. We partner with other alliance businesses to share transportation costs and get volume discounts. We are holding steady on “free” delivery for local clients, but raised our minimum delivery amount.
Now that we are on the other side of the wave, we are getting new clients because other suppliers are running out of items. It’s been challenging, but we have found a way to make it through and excel.”
—Mike Bacile, EO Dallas, Owner, The Daily Java
Relocate if necessary
“We ship 50-60 containers a year from China. Before Covid, each 40-foot container cost between US$2,000-$4,000 but went up to US$27,000 in September 2021. The cost to bring the container from the port to our warehouse increased from US$1,500 to US$4,000-$5,000. As a result, our shipping cost is now more than the actual product cost.
It seriously impacted our margins. Here’s what I did:
- Relocated our head office from Denver, Colorado to Pennsylvania to be closer to the ports, saving the extra US$4,000 to truck a container to our warehouse from Long Beach, California.
- Bypassed US freight forwarders by contacting our Chinese factories and asking them to connect us with local Chinese freight forwarders, which lowered our container price to US$18,000 at a height of US$27,000 in 2021.
- Increased sales prices by 10-15 percent.”
— Alicia Chong, EO Philadelphia, Founder and CEO, Blu Monaco
Seek silver linings
“As a wellness company, we source a myriad of ingredients, packaging materials, and equipment from around the world. Over the past few years, we’ve seen pricing, lead times, and quality fluctuate dramatically.
We’ve had to adjust and learn to navigate these issues. As a result, we’ve:
- Leaned more heavily on our inventory to cash balance
- Increased inventory
- Ordered sooner than we normally would
- Increased warehouse capacity to accommodate the need to hold more inventory
- Taken on inventory financing (Ampla) to help spread the investments over time
I’ve experienced first-hand the importance of developing strong vendor relationships: After a crucial shipment was stuck in the Hong Kong airport for weeks, I almost got on a plane to intervene in person. I was saved the trip when our vendor went herself, in the middle of the night, and was able to get our shipment on the next plane. Thanks to her, we were able to stick to a new product launch date by mere hours.
Global supply chain issues have impacted our profit; we’ve had to outlay more cash to stay ahead of supply issues, pay for and warehouse more inventory, along with higher prices of materials.
Even so, there are some silver-lining benefits. We’ve begun sourcing domestically more than we were pre-Covid. We launched our “Farm to Ned” program, in which we source all botanical ingredients from small, female, minority, LGBTQ-owned farms in the US. We’re giving small farmers a guaranteed buyer and price point, allowing them to grow more and gain greater exposure.”
—Ret Taylor, EO Colorado, Founder and CEO, Ned & Co.
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Categories: Best Practices Crisis OPERATIONS STRATEGY