Supply Chain Risk Impacts Small Businesses

Summary: The supply chain disruptions of the last few years have taken their toll on small businesses and they have found themselves out of depth to deal with it. For the supply chain to be back on track and also to avoid such future shocks, small companies in the fashion industry have to fundamentally improve how they operate in a volatile environment.

Small businesses have been reeling under the impact of supply chain disruptions that began with the pandemic and then the Russia-Ukraine war, along with climate change impact in several parts of the world, severely strained the entire structure. Unfortunately, the chaos is not going anytime soon. Though there is a semblance of stability return to the supply chain, it would take some years before things return to normal.

Small businesses critical to supply chain resilience

For the new normal to emerge, small businesses, whether suppliers or manufacturers, have to treat the crisis as an opportunity to give direction to their business. The world at large must also realize that small players have a big role to play in mitigating fashion supply chain risks, considering their sheer number.

In the US alone, companies with fewer than 500 employees make up 98% of the supply chain firms and over 20% of private employment. It is clear that without including these companies in the supply chain risk mitigation strategies, it is hard to achieve supply chain resilience.  

Challenges come with a size

Small businesses are struggling to find enough skilled workers; thus, owners are forced to cut back on their services and reduce working hours. The impact is being felt on existing customers, with canceled orders and lengthy delays risking brand loyalty.

On top of that, being small has its own set of challenges. They are last in the order to be serviced by the suppliers, who prioritize large orders from big fashion brands. And when they are able to get their hands on their necessary supplies, they have to shell out more, which adversely impacts their already strained cost structure. 

Some of the critical challenges impacting small businesses include raw material price increases, shortage of materials, increased shipping costs, and order fulfillment delays. Amid all the turbulence, no wonder that small business owners are feeling more stressed and stretched than ever before.

Size also makes small businesses nimble

Despite the number of challenges that small fashion players face, they usually have the advantage of being more nimble than large companies in deft maneuverings to make and sell products. They need to have the confidence to evolve their strategies keeping a long-term view and not lose sight of the scenarios and challenges as they unfold.

CAPEX main deterrent to tech adoption

The key is to focus on small businesses that are critical to supply chains but are typically indifferent to advanced manufacturing and supply chain innovations for the simple reason that they are not able to meet the high CAPEX attached to them. This results in a real-time disconnectivity between supply chain partners and their customers, adding to the overall inefficiency of the system and consequently leading to supply chain risks.

MIT research shows that in the US, the productivity of small and medium enterprises is two-thirds lower than that of larger firms, mainly due to their lack of investment in digital and automation technology.

Partnerships can make capital accessible

Mid-size and small fashion companies need to have better access to capital to deal with delays and shortages as well as to invest in technology. Big brands such as Walmart and Levi Strauss are also dependent on a whole array of small businesses to keep their operations running smoothly. They have now started taking small steps for deeper engagement with their suppliers for providing financial vehicles that help them with access to low-cost capital based on supply chain relationships. These long-term guarantees can bolster the small supplier’s confidence to go for a technology upgrade.

Strength lies in the collective force

The drive for sustainable practices is another headwind that small players find themselves ill-equipped to face. Recently, there have been several high-profile partnerships between brands and sustainable material innovators. A case in the point is Infinite Fiber, which is leading a 12-member consortium that includes H&M and Adidas, to introduce recycled cellulose fibers across the supply chain.

Small and medium businesses have the strength of the numbers to shape up such consortiums that can leverage material innovations from the likes of MycoWorks, which is offering a leather equivalent material without much greenhouse emissions. The challenges of recent years have highlighted the need for confrontational, disconnected, and distanced relations with the peer group to be replaced with a collaborative approach to problem-solving.

A shared vision to overcome disruption

There is no one-size-fits-all solution, but small companies in the fashion sphere need to rethink a strategy to ride out of disruption. Small businesses can hope to surmount the challenges by being hyper-focused on forging deep relationships with their partners, vendors, employees, and customers. Taking this relation to the next level with technological interventions that bring traceability and transparency to the supply chain can be a game changer for small businesses.

As a part of deleveraging their supply chain risks, mid and small-size companies can integrate with technology platforms such as Fashinza that provide stable design to shipment manufacturing solutions.

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Key Takeaways

• It is clear that without including small companies in the risk mitigation strategies, it is hard to achieve supply chain resilience. 
• Collaboration is the cornerstone of transforming opaque supply chains into transparent and measurable ones.