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Supply Chain Risk – Supply Side

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In this post I am going to discuss the supply chain risks that exist outside a company’s walls – i.e. risks with the suppliers of services, of raw materials, of components, of finished goods, etc. These are the risks that we have control over and can plan for.

Stuff-In-A-Box Wants it All

They believe that they deserve and can get the best quality and the best price in the shortest time-frame. The balancing of these three elements can best be illustrated by a fully inflated balloon with price, speed and quality at three equidistant points. If you push in on speed and price, quality will bulge out. If you push on speed and quality, price will bulge out. If you push in on price and quality, speed will bulge out. If you push in on all three elements, the balloon will very likely blow up in your face.

You Can’t Have it All

With time on your side, you can negotiate an attractive price and meet your quality standards. Having the ability to pay a bit more, you can negotiate a better schedule that also meets your quality standards. Of the three elements – cost, speed, and quality – quality should never be compromised. A shoddy product will be a black mark on your reputation and a negative hit to your bottom line, regardless of how fast and cheaply you delivered it to your customer.

Qualifying Suppliers

Think of your suppliers as extension of your company, sharing your values and commitment to open communication, customer service, and providing a quality product. To that end, you will need to qualify your suppliers by reviewing their business operations – physical and financial. Know the answers to the following question among others in order to give you confidence that they are a business partner and not just a supplier of goods.

  • How long have they been in business?
  • How is employee turnover?
  • Are they financially stable?
  • Do they willingly provide references?
  • Is their service and quality high and consistent?
  • Who are their top 3 or 5 customers?
  • Are you on that list?

Depending on the volume of business you do with these suppliers, make sure that you review their performance on a regular basis. Part of this business review should be an assessment of the relationship. Changes in the relationship, no matter how subtle, should be a point of discussion and may reveal issues that neither of you are aware of.

Hedging Your Bets

Even in the best of relationships, things can happen that are outside of your and your supplier’s control – i.e. weather, financial downturns, dock strikes, etc. In order to minimize the effects of these types of events, have plans in place to source components from multiple suppliers (in multiple locations) and consider possible substitutions that don’t compromise quality.

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