How The Chip Shortage Affects Small Businesses

As you know by now, the COVID-19 pandemic has resulted in the world's supply chain going haywire. Along with this, it has altered the ability of manufacturers to produce the all-important computer chips that are used in so many things in today's world. While most of the focus regarding the chip shortage has been primarily on automakers and other large corporations, small business owners have felt the impact in many ways. If you're curious about the impacts to small businesses and what lies ahead, here are some important facts to keep in mind.

Lack of Modern Office Essentials

Before the pandemic, a small business owner usually had no trouble whatsoever locating new office equipment to purchase, such as computers, printers, servers, and monitors. However, that has changed. As vendors are having an increasingly difficult time maintaining their usual inventory levels, the result is a shortage of computer hardware for small business owners. Since the problem likely won't be corrected until late 2022 at best, many small businesses are having to turn to eBay or other third-party vendors to get what they need. Unfortunately, this means they pay much higher prices on items that have been excessively marked-up in price, increasing their expenses while lessening their profits.

Harder to Purchase Company Vehicles

Since today's motor vehicles are essentially computers with wheels, the chip shortage has led to a marked decline in the number of vehicles available at dealerships. For small businesses that rely on company vehicles to provide services and make deliveries, finding new vehicles to purchase has become more like a scavenger hunt. Just as it is with office equipment, many new and used vehicles are not only in short supply, but are also being sold at much higher prices. Since many businesses rely on trucks and vans as their company vehicles, the higher prices and lack of dealer inventory are forcing them to either spend much more money than they anticipated, or to instead continue to rely on their current older vehicles indefinitely.

Lost Customers

For many small businesses, the chip shortage is also resulting in them losing customers. For example, businesses that sell various types of electronics have already exhausted their inventories, and are now forced into a waiting game for new equipment and products that could take months to arrive. As a result, customers are starting to look elsewhere to get what they need. With an economy that is already struggling to rebound to pre-pandemic levels, losing customers could ultimately mean a business owner shuts their doors for good.

The Big Companies First

While computer chips are in short supply, this does not mean they are not still being manufactured. However, small businesses are afraid that as chips are produced, the bulk of them will be distributed to larger corporations that are more profitable to chip manufacturers, leaving small businesses to fend for themselves. Since electronics giant Apple recently announced the chip shortage could result in a loss of at least $4 billion in its U.S. sales in 2021, small business owners are right to worry that larger companies will be first in line for chips as the supply increases.

Laying Off Workers

In the case of small manufacturing businesses that use computer chips in the products they make, a lack of chips eventually means a lack of work for employees. Since a company can't meet payroll if there is no business being conducted, the result is workers being laid off from their jobs. While this obviously puts the small business itself in jeopardy of closing, it also has a ripple effect throughout the economy, since out-of-work employees spend less at stores, cannot buy new homes or cars, and may also strain the healthcare system if they lose access to health insurance. As an example of this, auto manufacturer GM recently laid off more than 1,500 workers from one of its plants.

Creation of Artificial Shortages

Small business owners are not only being impacted by the current chip shortage, but also expect to be impacted once the supply starts to ramp up, thanks to what are known as artificial shortages. In past years when chips became scarce but did not begin to approach the problems of today, larger companies would take no chances and thus order a larger than normal inventory of computer chips. When this is done, an artificial shortage becomes reality for small business owners. Since most small businesses lack the cash and reputation needed to get what they need when they need it most in these situations, they are put on the backburner. Currently, many small businesses are being told the wait time for delivery of an adequate supply of computer chips will likely be 26 weeks at a minimum, with some being told it could be at least 52 weeks before they get what they need.

Price Increases

Even though most consumers like supporting their local small businesses, that is getting harder to do thanks to the chip shortage. While some businesses have vowed not to increase their prices, circumstances often dictate that eventually the additional expenses incurred by business owners must ultimately be passed on to their customers in the form of higher prices for products and services. Whether it's a restaurant that is having trouble getting new state-of-the-art food preparation equipment, a business that is forced to pay higher prices for new vehicles, or a small company that has to pay three times as much as they normally would for new computers and other equipment, higher prices only make a bad situation worse for everyone.

Though there will eventually be light at the end of the chip shortage tunnel, many small business owners are wondering if they, their employees, and their businesses will still be around to welcome a return to normalcy. From the price hikes to workers being laid off and the continuing uncertainty about how the ongoing pandemic may come up and alter things yet again, there are still many questions out there that do not have definitive answers.