So, you’re sourcing your manufacturers and materials, finding the right supplier, and building relationships across the supply chain for a successful product launch — congratulations, and welcome to the behind-the-scenes mess that takes place before your customers actually receive your product. Here’s where all the mistakes and mishaps happen, and you’re not alone: every founder has to go through this rite of passage. Today, we’ll shed light on our own learning curve and the errors we’ve made, plus offer you our best advice on how to build a resilient supply chain (yes, it sounds mundane, but it’s a necessary conversation — IYKYK).
To adequately discuss the situation at hand, let’s first address what’s going on in the global supply chain. To be straight up, it’s an absolute sh*tshow. The fragility of the supply chain is hanging by a thread, and startups and small businesses everywhere are feeling the pinch as inflation forces founders to ideate new strategies to keep their heads above water and stay profitable.
A large part of the shrinking margins are due to increasing logistics costs. With a shortage of truck drivers, seaport slots, and warehouse space, it’s becoming more expensive to import and move goods to/around the United States.
But it’s not all ✨inflation✨ — the logistics process has also become chaotic. Remember when the administration made Long Beach port open 24/7 in order to process the shipping containers waiting on the coast of California? Yeah, that didn’t help. Even though the ports were open, the trucking drivers weren't picking up any goods; the container freight warehouses nor the delivery destinations/warehouses were open at 3am. It’s almost like the administration forgot just how many players are involved in getting goods from point A to point B.
While we could go on and on with all the things that are wrong with our global supply chains, there will always be a myriad of issues that will continue to impact your business, and the best solution is to build a resilient supply chain. As you dive into the complexities of building your supply chain and optimizing for the smoothest possible logistics process, here are the key things to keep in mind.
Perhaps we start on the bright side – if you’re starting a brand today, you will automatically take into consideration the current environment and build an adaptable supply chain that can mold and adjust to current conditions. Most likely, you’re already planning for six-to-eight months out since your partners have already given you a heads up about the delays they’re experiencing.
On the other hand, if you’ve been operating since before the pandemic, you’re not necessarily accustomed to planning early to anticipate and accommodate for such delays. It used to take approximately five days for goods to clear at the port; now, it’s taking months. We can’t stress this enough: plan and forecast your inventory needs for at least the next six months in advance, and ensure your manufacturing partners have scheduled you into their production schedule and your raw materials suppliers have your goods available for you. If it’s feasible to assess and plan for the next 12 months in advance, do it! It’s never too early to plan.
Secondly, diversification has always been king (or queen!) for strategies to optimize for cost, efficiency, quality, and risk management. Let us be the first to tell you that diversification isn’t the only option — particularly for startups and small businesses that have limited funding and resources.
With Sieo’s experience bootstrapping and building consumer brands, we have realized the harsh reality that diversifying your product parts to different regions or different manufacturers is now resulting in a significant increase in cost due to the logistics costs associated with shipping and moving product. Previous to the pandemic, having multiple manufacturers and expecting all parts to be received in close proximity to each other was a reasonable expectation; now, it’s far from realistic. Finding a one-stop shop for packaging or finding a manufacturer that can help produce a large portion of your final product can be extremely helpful and reduce the cost burden.
That said, there’s inherent risk in depending on one supplier alone. If they’re unable to fit you into the production schedule, or something happens to their business, you’re vulnerable. Regardless of your decision to diversify or depend on a one-stop shop, always have a back-up plan (and to be honest, best to have at least two).
Finally, it’s easier said than done — transparency will always yield points with your consumers. Being a small business or a startup, staying profitable must be a top priority to continue operating, and lifting the hood for your consumers on what’s happening internally can help you build trust. As an example, let’s look at this statement by Momofuku increasing the price of their core products by $1.00. They offered a clear and concise explanation of the pressure they were feeling due to the increase in cost for the ingredients that go into their products. They shared how they will not be making a higher profit margin due to this $1.00 increase and instead broke down exactly whom the extra dollar will be allocated to.
The point here is your consumers are probably purchasing from you because they’re rooting for you too, so don’t be afraid to share your journey with them.
Now, don’t feel like because it’s tough to build a supply chain it’s tougher to build a brand. As I briefly mentioned earlier, it may be easier for a new business to get acclimated than an old business having to adapt to the current climate. If you’re starting a brand today, you would have optimized for the delays, the uncertainty and the rising costs because you’re building in today’s environment. Arguably, it’s more difficult to change the mindset and adjust the supply chain of a long-standing brand that existed before the pandemic when they weren’t experiencing congestion at the ports. That’s all to say, don’t be discouraged!
The pandemic has taught us many things, and one of them is that there will always be a plethora of issues and bottlenecks that will unexpectedly occur, and in turn, it will only force you to build a resilient system. Our hope is that we grow less and less dependent on the global supply chain systems.
Sieo has been building and supporting consumer brands for years and years, and if you’re looking for a long-term partner to support you across operations, business development, marketing, or creative drop us a line – we would love to hear from you. If you’re interested in learning more about the ways you can work with Sieo or hearing a little more about my learnings from building supply chains, listen to our recent podcast feature on Evolve CPG.