Prior to Covid-19, China was largely viewed as the hub of global supply chains. Once the Pandemic spread across the world and into the US, many companies began to fully recognize the depth of their dependence on China for critical materials and manufacturing. As business consultants, we often see companies that pay little or no attention to their supply chain until they are faced with a sudden problem. If there is any good news in the pandemic, it is that the experience has highlighted the need to carefully manage supply chains and to regularly assess and mitigate risk. No matter the size of your business, a well managed supply chain is important to your success.
Here are a few recommendations that we share with our clients.
Remember a chain is only as strong as its weakest link.
This is also true of supply chains. Be sure to proactively check each link in your company’s supply chain on a regular basis. It’s much easier to deal with a problem when you can see it coming.
Focus on developing the optimal number of links in your supply chain.
Try to avoid suppliers who are themselves dependent on several other vendors. The fewer middlemen the better. Your vendor may be reliable, but what about their vendors? Make sure you know who supplies your suppliers.
Practice due diligence with your suppliers.
Stay current with supplier relationships. Take the time to get to know them well enough to evaluate the possibility of such concerns as potential bankruptcy, vulnerability to severe weather events and cyber attacks. These are major events that can shut down a supplier very quickly.
Be diligent about checking your orders from suppliers.
Make sure everything is the type, quality and timing you contracted for. Incorrect orders can be a clear sign that the supplier may not be as reliable as you need them to be. It can also be a sign that they are facing new problems that can result in a disruption of your future supplies.
Understand any compliance issues.
Make sure you are aware of any relevant laws, policies or regulations that affect you or your suppliers and what steps need to be taken to make sure you and your vendors are in compliance.
Create a list of KNOWN RISKS and develop your plan for reacting to them.
It’s very helpful to anticipate and prioritize known risks by scope and probability so that you can develop your plans accordingly. We work in a fast paced business environment and things can change very quickly. Be sure to review your list on a regular basis.
Have a backup plan
Identify alternate suppliers and try to use them as a secondary source when appropriate. Of course using multiple suppliers for everything can be overkill, but having a relationship with a backup supplier for critical materials helps to mitigate risk.
Be especially mindful about access to capital should a disruption occur.
Try to factor in your current liabilities and how a sudden disruption in your supply chain could affect revenue and cash flow. Frequently stress test your cash flow forecast. Are there any steps you can take today to mitigate the extent of that risk?
Consider forming a supply chain team.
In many smaller companies supply chain management is centralized with the owner or CEO. In reality they simply don’t have the time to devote to the many details necessary to do the job properly. For large and small businesses, we recommend forming a cross-functional group who can make recommendations, help with logistics, contract management, forecasting and procurement. Your team can also serve to improve cross- functional communication which can be a great benefit to your company overall.
Don’t forget to anticipate the upside.
Remember that unexpected events such as Covid – 19 often create demand and opportunity for certain businesses. Have a plan to react to that as well.
If you have other questions about supply chains feel free to contact us.