In our “anything can happen” economy, it’s vital that small business owners have a Plan B that covers every area of the business for continuity. A key pain point for small, medium and micro enterprises (SMMEs) is when a supplier fails to deliver.
Given the ongoing issues with supply chains globally, a business leader who isn’t ready to deal with supply failure is, literally, the weakest link in the chain.
Here, ProfitShare Partners looks at how you can prepare for the top four potential risks to your business, and back it up with Plan B
Risks and solutions in the supply chain
- Production delays
- Risk: Suppliers failing to deliver your order will lead to production delays and on-time client order fulfilment within your company.
- Solution: Maintain good relationships with more than one supplier, preferably from different regions where possible. Implement an inventory management system so your staff are aware of when to order, and can manage supply disruptions by ensuring they follow business news and can take action rapidly.
- Price increases
- Risk: Supplier failures can force businesses to source materials from alternative, potentially more expensive suppliers, leading to increased production costs. Given the current volatility in financial markets, prices on imported and local goods may change overnight.
- Solution: By negotiating long-term contracts or agreements with suppliers to lock in prices and secure a stable supply chain. It is also possible where Forex is concerned to ensure your bank assists with an agreement where you are given the exchange rate on the day you signed with the bank that will hold whether the exchange rate changes for the worst – or the better. While it may be a gamble, it does allow SMEs to budget for a precise cost.
- Quality issues
- Risk: As suppliers scramble to source products or parts in their own industries, the result maybe the provision of substandard goods that not only compromise the quality of your expected final product, but can damage your business’s reputation and customer trust.
- Solution: Implement stringent quality control measures and work closely with suppliers to ensure your goods meet the standards specified in your service level agreements (SLAs). Regularly monitor and inspect incoming materials to catch any deviations early.
- Breach of contract
- Risk: Supply failures can lead to failure to meet your legal obligations and an unintended breach of clients’ contracts, leading to disputes and even financial liabilities.
- Solution: Make sure you have contracts with your suppliers that outline expectations, delivery schedules, and potential remedies for non-compliance. This may include penalty clauses for missed deliveries. Do the same with those your company supplies, to give yourself time to find an alternate solution. In all cases, honest communication with your supplier and your clients is crucial.
By adopting a proactive approach to supplier management – including having more than one supplier on hand – you reduce your company’s vulnerability and mitigate the risks inherent in relying on one supplier.
Assess your suppliers regularly for reliability, financial stability and track record so you’re able to switch with some agility if they are not able to perform. Again, it’s all about effective communication. While you do not want to lose a supplier that has performed well for you, you must have that Plan B.
By implementing these solutions and strategies, SMEs can better navigate supplier-related risks and maintain operational resilience, even in markets that are battling headwinds right now. Good housekeeping with regard to your supply chain will ensure your business isn’t the weakest link.
