Five biggest logistical challenges facing small businesses

Running a small business is certainly not for everyone – the long days (and weeks), potential staff issues, not to mention BAS statements – though many owners wouldn’t have it any other way.

Still, there are plenty of logistical challenges that small businesses find themselves dealing with day in and day out. Here are what we think are five of the biggest:

1. Fluctuations in demand

As a small business, the level of demand for your services may not always be in your control. Most retailers, for instance, can expect to be busier in December than they are in February.

Changes in demand like that are at least predictable, but others can come out of the blue.

Imagine you run a café and next week a major study comes out linking coffee to heart disease (god forbid!). All of a sudden, your sales drop off. Maybe it’s temporary and maybe it’s not but in the meantime do you let staff go or wait it out, hoping that next week, demand may bounce back?

The situation may be even more problematic for businesses with high inventory costs, say a small manufacturer. It can be a tricky one to get right, and a costly one to get wrong.

Effective inventory control, which includes categorising seasonal inventory, can be a good way of ensuring you’re not caught short but also not left with excess stock when demand cools.

Effective forecasting of that demand can also be another method to guard against fluctuations, as can varying capacity, such as the hours your employees work or using subcontractors in periods of heavy demand. This allows you to meet that demand but also means you don’t have expensive employee wage bills at times of slow demand.

In terms of diversifying your business to get around fluctuations in demand, you could aim to create non-peak demand through the establishment of new markets.

Online fashion retailer Zara famously left fashion’s traditional twice yearly collection business model well behind when it created a supply chain that could design and bring collections to market in a month.

“More than half of consumers say they won’t do business with a company again after just one bad experience”

2. Supply chain issues

When it comes to supply chain management and gaining access to suppliers, smaller businesses are often at a disadvantage compared to larger competitors.

If your business has an annual turnover of $2 million, you aren’t going to have the same leverage as a competitor with turnover of $200 million. That means you may end up paying more for products or services than your competitors and hand your rivals a competitive advantage.

Problems can also arise when you are selling goods and services on credit terms, such as 30 days and clients are remiss in their payments. Here, trade credit insurance is worth considering to help protect your business.

3. Controlling your costs

You should be tracking your costs and know what you spend on each aspect of your logistics chain. Because you will struggle to control your costs if you don’t. Is there anywhere you can save money?

To reduce expenditure, you could consider teaming up with others in your business network to share the costs of logistics, such as shipping. They might order from the same suppliers or from the same location.

Sharing costs here can also mean sharing the workload and responsibility.

Slick customer service can ensure your customers get what they want, when they want it.

This not only ensures a streamlined logistics pipeline but can also give you a competitive advantage in this increasing customer-centric digital world.

However the opposite can also put a significant dent in your operations and profit. What if your customer service isn’t up to scratch? What if the goods are being purchased but not being actioned properly by staff? Effective order tracking is key here.

More than half of consumers say they won’t do business with a company again after just one bad experience.

So focus on meeting your customers’ expectations. Do they prefer slower free shipping over faster methods they have to pay for? Do they want to deal with a person or do they prefer ordering through your website? Does your staff rostering coincide with periods of high and low demand?

Are you on-boarding and educating staff effectively enough? Because if your buying process is stalling with your staff, it can be a big problem.

5. No competitive tender process

Negotiate. Negotiate. Negotiate.

It will take a bit more of your time to create competition for your logistics services but it will be worth it. Companies will likely offer you a better deal if they know they are competing for your business.

It is worth your while shopping around to find the most reliable supplier. Gaining two or three quotes for each of your expenditures will give you a better idea of what you should really be paying and save you money in the long term.

Logistics problems can lead to business problems, that’s why it’s crucial to have the right business interruption insurancebusiness pack insurance or trade credit insurance, tailored to the unique needs of your company.

Important notice – Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers

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