UPS Longitudes | Supply Chains Still Recovering From Coronavirus
UPS has completed the sixth week of a study to measure the impact of COVID-19 on small and medium-sized businesses across the United States. This installment went to 400 U.S.-based respondents between April 29 and May 4.
Businesses remain optimistic, as last week’s gains in sentiment held steady this week. Yet as many respondents prepare to reopen their doors, upstream supply chain issues remain a significant challenge.
Eighty-six percent of businesses reported some aspect of supply chain disruption, driven primarily by the inability to replenish inventories and supplies (70 percent) and the closure of manufacturing partners (66 percent).
Not enough to go around
Respondents noted that while larger manufacturers stay relatively consistent, smaller manufacturers remain shut down. As a result, businesses are concerned that their upstream supply chains are not ready to support an anticipated demand resurgence.
These inventory challenges are especially pressing for businesses that have experienced sustained demand throughout the pandemic.
As one respondent noted, “Our warehouse is 90-percent empty. We’ve completely sold out of some models and won’t have replenished stock until at least August. We’ve been pursuing other suppliers, but we’re just not getting anywhere.”
This business owner is not alone: 19 percent of respondents are now looking for alternative manufacturing partners. Yet, obstacles persist even when small businesses find a new supplier because these companies struggle to meet demand from current and new customers.
“I am having to use suppliers that I am not familiar with, and the lead times are staggering,” said one respondent.
“Businesses share the same overarching sentiment: A full economic recovery requires that all gears in the supply chain begin turning in tandem.”
Other businesses are determined to stay with their trusted supplier no matter what it takes, particularly those who sell niche products difficult to source elsewhere.
As one respondent stated, “I’ll take money out of savings if I have to — I just can’t jeopardize my relationship with this supplier.”
Backlogs beyond the border
Companies sourcing their products or materials internationally have seen exacerbated challenges. Several businesses report that their overseas suppliers remain closed, while problems persist even with suppliers that remain open.
As one respondent stated, “The manufacturers of the components we use are mainly in Asia and are not up to full capacity. They’re running fewer shifts and fewer workers, so now parts that usually take 30 days are taking up to 100 days.”
Some businesses are rethinking their entire supply chain as a result of these international challenges, with 15 percent stating that they plan to change their sourcing to North America.
Others are dealing with inventory issues by streamlining their product mix to focus only on the best-selling items.
“Some businesses are rethinking their entire supply chain as a result of these international challenges, with 15 percent stating that they plan to change their sourcing to North America.”
“We’re moving to a more mainstream product offering so we can keep things moving,” said one manufacturer.
Some respondents are getting even more creative as they work to maintain steady inventory.
As one owner noted, “We are looking at manufacturing our own products in house so that we don't need a supplier.”
When asked about challenges they expect to face in the post-coronavirus environment, respondents pointed to the inability to replenish inventory as a top concern (34 percent).
While their approaches to handling inventory challenges may differ, businesses share the same overarching sentiment: A full economic recovery requires that all gears in the supply chain begin turning in tandem.
UPS will deploy this survey every week to monitor the continuously evolving influence of the COVID-19 pandemic on small and medium-sized businesses.