Mitigating Supply Chain Disruptions
Since the pandemic rocked the global supply chain, companies have struggled to produce and ship products.
MuteMe however was born in this chaos. Since starting this hardware company about a year ago; we have faced major supply chain disruptions that could have ruined our chances of becoming a viable business.
Over the last year everyone has faced many challenges but running out of inventory or not being able to produce your product is a challenge that carries huge risk for your company.
We have had three major supply disruptions this last year caused by unforeseeable factors, business decisions, and even positive fortune.
Three reasons for our inventory issues:
Global Chip Shortage - March/April 2021
The global chip shortage resulted in our team having to quickly redesign the product right as we were finishing our Kickstarter campaign. As we were getting ready to place an order for about 10,000 microcontrollers, the worldwide supply for controllers goes from 40,000 units to less than 1000 units all over the course of two days. We don't know if this was panic buying as customers see their supply chains being impacted and then they order proactively or if this was just a fluke and some large customer decided to buy up the worldwide supply. Our best estimate is it was a little bit of both. Companies and suppliers monitor the worldwide supply of components as they see inventory dwindling everyone attempts to buy up additional reserves as well.
Large Clients / Customers - May/June/July 2021
This last year we also ran into issues due to a very small number of large customers buying up all of the available inventory. The second time we ran out of inventory it was primarily driven by a large sale of devices to Staples. You're a brand new company and Staples the national retailer with over 1000 stores reaches out and wants to carry your product. What do you do? You sell! right? As we were in the midst of fulfilling our KickStarter orders we got a purchase order from Staples and ended up fulfilling all orders including the Staples PO but then only had about a two-week supply of devices left and sold out. Add to the fact that when you sell to a large retailer the payment terms are not immediate (we can't disclose but they typically range between 30 days and 60 days) and the issue becomes apparent. We can't disclose but shout out to Staples for giving us really good terms and being a really good partner.
Mass Media - November / December 2021
This last reason is my favorite. Don't underestimate the power of mass media. Due to the overwhelming success of our SharkTank appearance we ended up running out of inventory that should've lasted about 2 to 3 months in about 15 days.
We had talked with multiple companies that had been on SharkTank previously to learn about the impacts that a brand could face immediately after airing. They all said that we could see upwards of 40,000 to 80,000 visitors on our website within a handful of seconds after airing and would see residual traffic for about a week. After much anticipation we watched the episode air live on the east coast (first time it airs) and our website traffic was not as high as we had estimated or hoped.
We decided not to place an order immediately since the traffic was lower than even our conservative estimates. Then just as expected residual or traffic was high over the next few days.
But then something unexpected happened, the traffic was not slowing down. The advice that we had gotten was from companies that had aired on the show between seasons six and ten which is approximately three to seven years ago. TV watching behavior has completely changed from that time, people don't watch TV live like they used to, and there are so many streaming services providing on demand content. We had not accounted for that. That watching behavior resulted in increased traffic and us placing an order later than we should have. We still would have run out of inventory but we could have saved five to ten days on the backend.
We learned very early on that we couldn't rest on our laurels or rely on a steady supply chain in order for our business to continue to grow and thrive. We learned both proactively and reactively that any company that wants to be successful in the future is going to need a clear-cut strategy to mitigate and deliver regardless of the challenges.
Steps to mitigate supply chain disruptions and deliver as quickly as possible:
- Order increased levels of inventory using projection models based on sales growth. We order inventory based on projections of future sales growth and seasonal variations that occur annually.
- Secure additional supplies of critical components. There are three critical components on our device, this includes the primary controller, the touch controller, and the RGB LEDs. For each one of these critical components, we have secured inventory and developed mitigation plans.
- Develop different designs (electronics) that rely on different components. We learned this lesson early on, as we were finishing up our Kickstarter and getting ready to place an order for the primary ICs (computer chips) the worldwide supply for the component we needed went from 40,000 units to about 1000. Because we have our own engineering talent we were able to mitigate by developing a different design that relied on a completely different chip.
- Additional fulfillment centers help us get products out quickly. We added two new fulfillment centers to move packages from both the West Coast and East Coast. Not only do they help us speed up how fast packages reach our customers, and they also provide an additional layer of redundancy.
- Additional partnerships help us serve an increasing customer base. We added distribution partners for enterprise order fulfillment with screen printing capabilities that will hold and ship inventory. Once again this frees up our capabilities, adds a service customers have been asking for, and increases redundancy.
- Maintaining in-house capabilities is absolutely critical to ensure control. This includes both technical capabilities such as the ability to rapid prototype, evaluate, and design all in house; and business capabilities such as maintaining our own warehouse and distribution center in California (close by) to ensure a failsafe.
- Multiple suppliers allow you to source components from all over the world. We have relied on the big three commercial suppliers for electronic components and have relied on a few large reputable suppliers from Europe and the United States to quickly get us what we need.
- Multiple shipping methods also help to ensure our products reach the shores of the United States. We rely both on air freight and sea freight to move products from where they're manufactured to where they're needed. Moving products via air takes delivery time down to one week from a high of 45 days. This also helps in case there are challenges with any particular shipping method. We also tend to split our inventory between the West Coast and East Coast so it even arrives on separate planes/ships.
- Transparency with partners is critical to ensure they understand your business. We share sales projections and forecasts with our partners to ensure they have the appropriate time to secure any type of materials they may need.
- Risk reviews we conduct periodic risk assessments to determine supply chain issues, mitigation strategies, and worst case scenario drills. These drills help us prepare for potential negative consequences that may be outside our control.
With the steps outlined above, we are confident that we can mitigate most future supply chain disruptions and continue to deliver products users want as quickly and efficiently as possible.