Supply chain issues can catch business leaders off guard. How do you maintain profit margins when transportation costs are rising, delivery times are getting longer, and there is an input shortage? With the most recent lock down in China, input supplies from that country will remain a problem. Here is some advice to help you make the right choices so you can come out on top in these circumstances.
Due to their dependence on both foreign suppliers for inputs and export markets for sales, the wholesale, construction, manufacturing and retail sectors have been the hardest hit in Canada by supply chain issues. What’s more, soaring oil prices are taking a toll on the metal and energy sectors, while also affecting many other industries, such as such as agri-food and automotive, which in turn depend on these sectors.
Large companies are not the only ones that have experienced supply chain problems over the past 2 years. The Canadian Federation of Independent Business (CFIB), which represents primarily SMEs, indicated that 55% of its members had experienced delays in the production and delivery of their products, as well as with their suppliers.
The Canadian Survey on Business Conditions, conducted by Statistics Canada in 2021, indicated that the following problems also affected Canadian businesses: rising input costs (38.5% of respondents), labour shortages (30.3%), rising transportation costs (22.8%) and difficulties in acquiring inputs (15.0%). In Quebec, labour shortages top the list (45.5%), followed by rising input costs (34.5%), rising transportation costs (20.3%) and difficulties in acquiring inputs (16.9%).
How to come out on top of a difficult situation?
Many business owners worry that their profit margins will melt away, since input and transportation costs have increased so drastically. However, don’t see your company as a victim of circumstances: in difficult times, leaders find solutions and emerge stronger from any situation. Yes, it’s a major challenge, but experts have already thought of solutions.
Your company’s current vulnerability is due to several factors. Here are possible solutions to reduce your vulnerability and anticipate future issues:
Find alternative supply channels
To stop your company from being at the mercy of a single supplier, you should avoid having too many inputs that come from one or only a few foreign suppliers. Making changes may be more complicated from a logistics management perspective, but this will lower your level of risk exposure.
What are the most vulnerable imported items in your supply chain, and what alternatives could be available quickly? With your new suppliers, you will be able to negotiate new agreements (China and India aren’t the only countries to offer good prices)! For example, it could be a good idea to have a supplier in Mexico, since delivery times will be shorter. Minimize the impact of supply chain weaknesses by diversifying your supply sources and strengthening your current partnerships.
Determine which inputs you can get in Quebec, Canada, Mexico or another Latin American country. Half of all business owners are able to find Canadian suppliers for their essential inputs.1 What’s more, the government has increased the number of temporary workers allowed to provide a workforce for manufacturers and producers, and has added more aggressive policies to help SMEs accelerate the integration of new technologies (automation) for example.
Real Cost Analysis
Did you know that 20% of import costs are often underestimated? When evaluating the final costs of your imports, you should take into account current difficulties that make deliveries unpredictable and much more expensive; bottlenecks; increased foreign labour costs; and changes in import tariffs. You should always allow for a 15% margin of error when forecasting export costs.
“Before considering exporting, you need to do upstream cost analyses,” says Claudine Fyfe, supply chain specialist at Fynlam. “We often set the wrong resale price and give up on markets because of this. The cost analysis must be done very carefully: product quality and compliance must be ensured BEFORE goods leave the ship from China, for example.” There are strategies and tools that you can use to properly analyse your real costs. To find out what they are, see Mme Fyfe’s article.
Pricing your products
SME owners say they will raise their prices an average of 3.3% over the next 12 months, the largest increase since 2009.2 However, is this the best decision in the current inflationary environment? Yes, salaries will also increase (from 3.3% to 3.5% in Quebec and from 3.1% and 3.4% in Canada3), but by raising your prices too much, you risk losing some of your customers and damaging your company’s image. You have to find the right balance to avoid losing a part of your clientele yet still make a profit.
Mergers and acquisitions
According to a study by the Business Development Bank of Canada (BDC) conducted in 2021, entrepreneurs who choose to grow their businesses through mergers/acquisitions are twice as likely to experience growth in sales above their industry average. This growth strategy enables the addition of new resources to address labour shortages and provides access to more technologies that can accelerate production.
Successful mergers and acquisitions depend on several elements. The main thing is to create a successful and profitable synergy between both entities. Moreover, “many companies make a lot of acquisitions without considering the supply chain,” says Claudine Fyfe. “In the current context, it should be front and centre!”
Risk management methods
Invest in accurate risk management data and rethink your business model if need be. Assess threats related to production, supply and sales which include suppliers, manufacturers, warehouses, transportation routes and retailers.
Then establish a risk management process based on the probability of the risk occurring, the potential impacts of the risk, and your ability to mitigate the risk. With specialized software, companies can automate risk management along the entire supply chain.
To be competitive, companies must have an excellent marketing and advertising strategy. Your company’s brand image must be spot on, and your products should be promoted as much as possible on all social media and other communication networks. A specialized agency can help you.
Get effective advice
In these uncertain times, the priority for SME owners’ should be to stop and think about strategy with export experts. They are very familiar with supply chain issues and how to deal with them.
GoExport can help you take stock of your current situation and implement winning solutions to help you get control. We will also explain to you how to anticipate issues that could become challenging in the years to come.