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How logistics change when goods are in short supply
When goods become scarce, logistics cease to be merely a matter of delivery from the warehouse. We’ll examine in detail exactly what changes and what steps can help maintain sales and profits in a new blog post from LLC «SyncraNova».
Speed is more important than cost
If a product is in high demand, the cost of delivery takes a back seat. What matters now is that the order reaches the customer faster than the competition can. If you try to save on transport, consider that you are handing your profits over to others. The solution is simple, though unpleasant: during a shortage, logistics should be assessed not by cost but by speed. Even if express delivery costs more than standard delivery, it is justified. In a situation of product scarcity, time is directly linked to revenue.
In a normal situation, you first have the goods and a confirmed order - then you look for transport to match it. During a shortage, working this way is risky. It is better to reserve transport for the forecast volume first, and then organise a specific shipment to match it. Sometimes you will have to pay for transport downtime, but this is cheaper than losing customers.
Prioritising key customers
When stock is limited, it cannot be divided equally amongst all customers, as different customers generate different levels of profit. If you allocate stock equally to everyone, a major customer might not receive their full allocation and could switch to a competitor. And the smaller customers, for whose sake you divided the stock, will not make up for this loss. When there is a shortage, goods are first allocated to key customers (those who generate the bulk of revenue), with the remainder going to others. Otherwise, the scarce supply is spread too thinly and profits fall.
Speed is more important than cost
If a product is in high demand, the cost of delivery takes a back seat. What matters now is that the order reaches the customer faster than the competition can. If you try to save on transport, consider that you are handing your profits over to others. The solution is simple, though unpleasant: during a shortage, logistics should be assessed not by cost but by speed. Even if express delivery costs more than standard delivery, it is justified. In a situation of product scarcity, time is directly linked to revenue.
In a normal situation, you first have the goods and a confirmed order - then you look for transport to match it. During a shortage, working this way is risky. It is better to reserve transport for the forecast volume first, and then organise a specific shipment to match it. Sometimes you will have to pay for transport downtime, but this is cheaper than losing customers.
Prioritising key customers
When stock is limited, it cannot be divided equally amongst all customers, as different customers generate different levels of profit. If you allocate stock equally to everyone, a major customer might not receive their full allocation and could switch to a competitor. And the smaller customers, for whose sake you divided the stock, will not make up for this loss. When there is a shortage, goods are first allocated to key customers (those who generate the bulk of revenue), with the remainder going to others. Otherwise, the scarce supply is spread too thinly and profits fall.
Tying up working capital
When goods are in short supply, you have to buy them in advance and in large quantities to avoid running out of stock. Money is tied up in stock, whilst the revenue from sales will only come in later. On paper, this looks like an increase in assets, but in reality there is less cash available, and it may not be enough to cover day-to-day expenses.
In the event of a shortage, the problem often lies not in a lack of demand, but in a lack of cash to maintain supplies. It is therefore important to constantly plan how much money you need to have in circulation and to maintain a liquidity reserve to avoid a cash flow gap.
When goods are in short supply, you have to buy them in advance and in large quantities to avoid running out of stock. Money is tied up in stock, whilst the revenue from sales will only come in later. On paper, this looks like an increase in assets, but in reality there is less cash available, and it may not be enough to cover day-to-day expenses.
In the event of a shortage, the problem often lies not in a lack of demand, but in a lack of cash to maintain supplies. It is therefore important to constantly plan how much money you need to have in circulation and to maintain a liquidity reserve to avoid a cash flow gap.
Risks of supply disruptions
Shortages rarely occur in isolation. If a product is scarce, it means the supply chain is unstable. Any delay at any stage can bring deliveries to a halt. A common mistake is to rely on a single supplier or a single route, as the experts at LLC «SyncraNova» point out. It is therefore worth seeking alternatives: additional suppliers, backup delivery routes. Even if they are slightly more expensive. A single failed contract can cost more than the extra cost of a backup option.
Profiting from high demand
During a shortage, it is possible to earn more, provided that deliveries run smoothly. A high product price does not in itself generate profit if the goods do not reach the customer. Many lose money on penalties and expensive emergency purchases. It is therefore important to calculate all logistics costs and factor them into the price; otherwise, profits will not grow, even with high demand.
The key point to remember
In times of shortage, the old rule of ‘saving on delivery’ does not work. The main thing is to retain profits and customers. The winner is whoever delivers quickly and reliably and manages deliveries strategically. If you realise this before your competitors, you earn more. If you realise it later, you lose money.
Shortages rarely occur in isolation. If a product is scarce, it means the supply chain is unstable. Any delay at any stage can bring deliveries to a halt. A common mistake is to rely on a single supplier or a single route, as the experts at LLC «SyncraNova» point out. It is therefore worth seeking alternatives: additional suppliers, backup delivery routes. Even if they are slightly more expensive. A single failed contract can cost more than the extra cost of a backup option.
Profiting from high demand
During a shortage, it is possible to earn more, provided that deliveries run smoothly. A high product price does not in itself generate profit if the goods do not reach the customer. Many lose money on penalties and expensive emergency purchases. It is therefore important to calculate all logistics costs and factor them into the price; otherwise, profits will not grow, even with high demand.
The key point to remember
In times of shortage, the old rule of ‘saving on delivery’ does not work. The main thing is to retain profits and customers. The winner is whoever delivers quickly and reliably and manages deliveries strategically. If you realise this before your competitors, you earn more. If you realise it later, you lose money.