Many companies embrace global supply chains for the financial and competitive advantages they offer. Some have no choice because the raw materials or products they require only exist or are manufactured in certain parts of the world.
But, for all the benefits associated with global supply chains, there are also risks. Those risks include transportation interruptions, political or civil unrest, natural disasters, financial instability, subcontractor issues, tariff changes and limited sources of supply.
The first step in mitigating risks is to identify which ones apply to your operation.
Once you understand the risks to your supply chain, you can select from an array of possible strategies to address those risks. A good first step is to conduct a comprehensive risk analysis of your critical suppliers. Critical suppliers, for the purpose of this discussion, are suppliers that can materially impact your ability to produce product or provide services if they fail to deliver.
1. Expect transportation to be a more significant factor in global suppliers vs domestic suppliers.
Even under good circumstances expect your lead times to be considerably longer due to unexpected circumstances such as border delays, transportation instability, strikes and port delays. Anticipate workarounds such as larger working capital investments and extending letters of credit terms.
2. Evaluate the supplier’s financial condition.
If the company is publicly traded, review their financial reports for revenue, expense, debt or other business concerns that could impact their stability.
3. Identify a pool of alternative suppliers.
There are often other suppliers that could meet your business needs. You should know who they are and what the likely ramp up time would be if you needed to use them. You should also consider if you should split your current business between multiple suppliers.
4. Develop alternative suppliers if none exist.
If there are no alternative suppliers available, it may be time to actively develop some. There may be companies in a closely related field that would be willing to expand and develop the capability to supply your needs if they knew you would be willing to use their product.
5. Consider acquiring the supplier if you represent a major portion of their annual income.
If you have the financial ability, this may be the best way to assure a steady and reliable supply.
6. Look beyond your direct supplier to the suppliers of your supplier.
The suppliers of your critical suppliers also deserve scrutiny to be sure they are stable or can be replaced quickly if necessary.
7. Create a stockpile of critical components or materials for your operation based on the time needed to transition to another supplier.
Though there is a cost to this option, having a stockpile of critical components or raw materials can help to insulate you from business disruption in the event your supplier can’t deliver as usual.
8. Look at the physical location of your suppliers and alternative suppliers to ensure geographic diversity.
You should try to avoid having your suppliers located too close together. This will reduce the possibility of a single regional event impacting all of your suppliers.
9. Conduct regular supplier performance evaluations.
Take the time to conduct quarterly supplier performance reviews to address any issues and to discuss ways to improve the working relationship.
The financial and competitive advantages of global supply chain are undeniable. But companies should to be prepared for unexpected disruptions and changes in the marketplace.