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Edition 302 – Shortages

It started out with computer chips. A worldwide shortage that has had everyone from electronics companies to car manufacturers scrambling to solve the problem.

Next up was timber. I’m surprised at that in Australia, but it appears there’s currently a shortage of timber for the construction industry. As new house builds are a leading economic indicator, it will be interesting to see how this impacts not only the the building industry, but the economy as a whole.

A few weeks back, a client informed me the next shortage that is coming is for silicon. I must have looked stunned when he mentioned it to me, because he proceeded to explain just how much our lives relied on silicon. From water sealing to iPad covers, it’s incredible the widespread impact of something that most of us take no interest in whatsoever.

Today’s missive is not a rundown of what shortages are happening next. It’s about family business owners and managers taking a moment to stop and consider:

  1. What would happen if a key ingredient in your business all of a sudden was in short supply?
  2. What alternative products can you source to overcome any short supply of a key product?
  3. What impact will shortages and any possible replacements have on your budget bottom line and, therefore, on your current and future pricing?
  4. What delays to your current and future projects could you experience and what does that mean in terms of business performance and contractual obligations.

In September 2021, Toyota had to cut global production by around 40%, so impacted was the world’s second largest car company by computer chip shortages. In hard numbers, that’s 360,000 vehicles it couldn’t manufacture in the month of September alone. To put that in perspective, that’s about one third of the total annual car sales of the entire Australian new car market.

My guess is that most small and family businesses could not handle a 40% reduction in their output due to any factor outside of their control.  Whilst the pandemic has created the greatest disruption over the past two years, the various Government COVID 19 support packages have helped to insulate most businesses against the impact of lockdowns and the associated uncertainty.

In my opinion, there is an extreme possibility that the shortages opening up in many areas of the market today will create the most significant financial impact on most businesses over the next 12 months to two years.

If you’re the owner or manager of a family business, what are you are doing to “war-game” the consequences of supply shortages in your business – and how long you can sustain the disruption?

This Week’s Tip

Sadly, too many businesses still retain too little cash to insulate themselves against any future shock – shortages, pandemic or anything else.