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What is the global supply chain, and how does it affect big and small businesses?

The global supply chain is a worldwide system used by businesses to create and sell products and services. While the concept itself is pretty simple, there are a lot of moving parts in the global supply chain.

The supply chain often makes it easier to get goods and services, even for small companies. It also lets many companies sell to customers located anywhere in the world. But using the global supply chain has some serious risks. When one link in the chain breaks, it can affect every link that comes after the breakdown.

You may have heard of the global chip shortage. This is a great example of where the global supply chain is facing serious challenges and struggling to keep up. In short, the world has a computer chip shortage because of many problems affecting the global supply chain. This "perfect storm" of factors includes:

  • Trade wars.
  • COVID-19 pandemic.
  • Drought.
  • Snowstorms.
  • Huge demand.

In the end, each factor lowers the number of semiconductor facilities that are making chips. The result is that the industry cannot make enough to match today's level of demand.

When it comes to running a small business, even if your company does not directly buy or sell products in other countries, your suppliers might. They might be backlogged because of a global chip shortage even though your business is unrelated to computer chips. When one hiccup occurs overseas, for example, it can have a huge impact on your suppliers (or even their suppliers). This then gets passed along to you, and finally, it hits your customers.

How can I plan for global supply chain disruptions?

Having a plan, even an uncertain one, is usually better than having no plan. Every industry tends to be different in how it needs to deal with supply chain problems. The result is that your plan might be different from that of other small business owners. Below are just a few ways you can get ready for disruptions.

Focus on communication

In general, keeping open communication with your suppliers and customers is important. You may want to warn clients ahead of orders when there might be problems. As soon as you know you might have stocking problems, you can let your clients know with an Out of Stock Item Letter or by other means.

Understand your supply chain

Many small business owners do not know where in the world their supplies come from. Ask your suppliers for this information so you can have a better idea of whether disruptions in certain locations will affect you.

Protect yourself with supply contracts

A supply contract is not likely to help you avoid supply chain problems. But it might give you a way to get back any losses you experience because of supply chain problems. It is wise to have a Supply Contract in place with your suppliers.

Use contracts that favor you

If you have regular contracts with your customers, you might want to add a statement that lets you get out of the contract because of supply chain problems. You can add this right into every Purchase Agreement. In addition, your Service Contracts can have this kind of language in them as well.

Are there any affordable technology options that can help with supply chain issues?

Lots of software options are available for companies who want to keep a close eye on their stock and suppliers. Of course, what you think is affordable might not be an option for someone else.

Still, supply chain software can help you:

  • Plan for changes in demand and spot patterns.
  • Track orders and delivery scheduling.
  • Find suppliers.
  • Manage warehouse activities more efficiently.
  • Address returns and damaged goods.

The technology your company needs to track your supply will likely depend on your size, goals, and industry. If you are thinking about using supply chain software, it is a good idea to look at features and product reviews specific to your industry.

Should I work with more suppliers and business partners?

As a small business owner, you may rely on just one or two suppliers for most of your needs. Relying on the same company for your ongoing needs makes it easy to keep your supplies on hand. However, you may end up in a pickle if your supplier suddenly cannot provide the products you need.

Instead, you might want to form relationships with several suppliers. Expanding the number of your suppliers can give you a backup plan if your first-choice supplier runs into problems.

Still, it may not make sense for every business to use more suppliers. As you add suppliers, ordering and tracking can become more complicated. You may need to think carefully about timing, quality, and cost if you want to add more suppliers.

How should I tell my customers about supply chain problems?

Being honest and direct with your customers is often the best practice. Providing information is usually better than avoiding the conversation, and it can go a long way to build and keep customer relationships.

Some good steps to take could include providing details about the shortage and what you know about the issue, and to update customers often. You can explain what you are doing to correct the issue, or how you plan to fix problems the delay may cause your customers.

If you have questions about the legal impact of supply chain disruptions to your company, reach out to a Rocket Lawyer On Call® attorney for answers to your questions and affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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