As a business owner, you likely have relationships with an assortment of suppliers. Certain raw materials have to be bought from specific suppliers and these types of working agreements are common in many businesses. When dealing with your company’s various suppliers, one of the most important things is mitigating supplier risk. This is because issues with your suppliers can have a notable impact on your business and its ability to perform daily business activities.
Common Issues With Suppliers
Mitigation of supplier risks can reduce the impact of commonly encountered issuers. These issues include (but are not limited to) the following.
- Lack of Materials: suppliers can run out of the raw materials they provide to their clients. If you only have one supplier for a vital component in your manufacturing process a supply shortage can greatly limit your ability to produce finished products.
- Shipping Concerns: depending on where your suppliers are located shipping issues can be a problem. Shipping delays can be caused by various factors, but the most common is often extreme weather conditions. If your supplier is located far away from your warehouse then weather issues can occur at various points in the shipment process.
- Various Delays: many issues can arise with suppliers as you are dealing with an outside business entity. These can be various issues with the business itself, closures, ownership changes, local problems if it’s a foreign supplier, possible trade issues, and more. There are many factors you cannot predict, but you have to be prepared for.
- Bottlenecks: when you have contracts with multiple suppliers there can be issues with having all the raw materials you need. Some suppliers may be able to provide materials faster and in greater quantities than others. This can easily create situations where you can have an overabundance of one material while lacking in another. This can create production bottlenecks and timing issues.
Advantages Of Mitigating Supplier Risk
- Early Detection of Potential Issues: by carefully monitoring your suppliers and having open channels of communication you can become aware of issues or potential issues before they affect your business. This allows you to make needed changes as issues occur reducing the impact on your daily activities.
- Respond To Random Events: as noted above there are many events that can occur that affect supply chains some business-related and others outside of company control such as the weather. When you monitor risk you make changes to respond to these random events, so their impact is limited, and you can still serve your customers.
- Limit Impact To Daily Operations: for many businesses (especially those in the manufacturing field) interruptions or issues with their supply chain can be critical to normal business activities. For example, if your supplier of a key component is experiencing delivery delays you have to have a plan in place to respond to such a challenge, so production doesn’t stop entirely. Careful mitigation has plans in place to respond to concerns such as this.
- Better Use of Resources: another advantage of supply chain mitigation is that it helps eliminate waste in your supply chain. Reducing waste not only saves on business expenses it also removes areas that can add risk to your supply chain’s stability.
In the modern business world, you have to be ready to respond within hours and the modern business world is global and interconnected. You can’t afford to be reactive you have to be proactive in your actions and responses. Events happening all over the world can affect your supply chain and by extension your company. You have to be prepared for random events and your supply chain is one part of your business that can be affected by externalities. By having a mitigation plan in place you’re ready to respond to things no matter what they may be.