What You Can’t See Can Hurt You
Thomas Friedman likes to point out that the world is flat. And he’s right. As companies have accelerated efforts to gain competitive advantage, the lines between what’s insourced and outsourced have become increasingly blurred.
Companies now rely on an interconnected web of relationships to run their businesses. And as a result, they can no longer operate under the mindset that they are a single entity. Because they aren’t. They need to keep a keen eye on their trading partners. Because their business is their business.
In my last post I talked about the risks that suppliers can create and the importance of managing them. It sounds like a daunting task. But with a few simple actions, you can get a process in place to minimize potentially negative impacts on your company’s performance and profits.
First, include risk management in your sourcing strategy. Start by revisiting your sourcing process, Requests for Proposal, etc., to confirm that risk management is adequately addressed in your evaluation by all of your buyers.
Next, take advantage of innovative technologies like business networks which make it easy to discover, connect and collaborate with trading partners across the street and around the globe. Use them to standardize and aggregate your supplier information, on-board new suppliers, assess compliance, proactively manage supply risk and get a 360-degree view of their information and activities.
Audit the financial, operational and balance-of-trade exposure of your most strategic and mission-critical suppliers on a regular basis. Too often, investigation of supplier solvency and dependencies are limited to the initial sourcing project. You need only to open a newspaper or turn on the nightly news to realize that the health of even the seemingly most stable companies can degrade quickly.
Look for early warning signs. Drops in quality or shipment delays can be indications that the supplier has cut too deep into its operations. More frequent requests for early payment or changes in sales and support personnel should also raise a red flag. While these symptoms may not necessarily belay supplier troubles, they warrant investigation.
Increase the frequency of supplier performance reviews. In the face of highly volatile markets where credit is tight, reviews should be done at least quarterly with your most strategic and mission-critical suppliers and semi-annually with your next tier of suppliers.
These actions may be time consuming, but they’re well worth the effort. Brands take years to create. And in a split second, they can be damaged beyond repair…