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It’s 2017 now, and the majority of supply chains are characterised by the close integration of vendors within purchasing bodies. These days, more than ever, suppliers are seen more as strategic partners, who can open up ways for clients to add scale and capabilities, all the while keeping up innovation and driving efficiency. In the modern make-up of your average supply chain, it’s more important than ever for clients to identify disruptions before they happen, and take steps to mitigate them. Here, we’ve listed some of the most common risk factors that have been disrupting modern supply chains wherever you look, and a little more insight into what they could mean for your business.
The Health of the Supplier’s Core Market
Take a moment and ask yourself, is your supplier focussed on a market that’s in decline, or one that’s growing at a steady, healthy increment? Let’s take the traditional document management business model, or companies that sell things like printers and photocopiers. Suppliers who are a part of this niche are facing a potent, existential threat from the fact that the world is now so dependent on digital technology, which has moved to replace the use of paper in countless businesses. If your supplier is leaning heavily on niches or products that are in decline, and not responding well to the development of technology and changing business conventions, then future growth is certain to be at risk.
Potential to Grow and Hold Market Share
One of the key factors that’s going to determine your supplier’s market share is its ability to respond to competitive pressure and stimulate innovation. The loss of market share is often one of the biggest early indicators of a supplier hitting some kind of financial stress. This may not hit immediately, but if your supplier can’t keep up with modern conventions then believe me it’s certainly on its way! It may be wise to get out of there while you can still formulate a good exit strategy.
Ability to Respond to Technological Changes
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New tech is being developed and released at a feverish pace these days, and it’s all been disrupting supply chain models in pretty much any industry you can name. This trend isn’t going to disappear any time soon, so it’s important to have a supplier who’s quick to act on such trends, particularly with bespoke machinery like the products by Reliant Finishing Systems. This will ensure you’re not left in the dust while your competitors are getting lower costs and improved delivery from their vendors. Closely related to this is the ever-changing face of business process outsourcing. Here, robotics and automated processes are emerging more and more as a smart alternative to repetitive tasks that previously had to be handled by human workers – both in terms of quality and cost. This is just one of the many technological trends that have been changing the standards of many different industries. If the suppliers you’re buying from are unable to keep up with the trends that are defining your niche, then you won’t be able to guarantee a stable future.
Diversity Within Revenue Base
If your supplier is heavily dependent on a certain set of clients, a particular business niche, or a geographic area, then you need to be wary of this. In this kind of situation, losing such a client, the influence in a particular area, or a similar dramatic shift, can have a massive impact on your supplier’s ability to maintain their day-to-day operations. Depending on how much your profits hinge on this one factor, your business may not be able to afford such a staggering blow to your main supplier. This is a potentially big risk you need to be aware of, and protecting yourself from in the future.
Stability and Reliability of the Higher-Ups
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Another thing that’s very important to pay attention to is the upper echelons of your supplier’s business. The first question you need to ask is this: do they have stable senior management that has set out, and is now implementing, a well-defined growth plan? If the answer is “no”, then it may be time to start scouring prospective new suppliers! There are various other things you should be looking out for to gauge how stable and reliable the higher-ups at your supplier’s business are. A lot of changes in the most senior personnel, or frequent, possibly erratic shifts in strategic direction, can often be an early warning sign of financial stress, which will be certain to impact you. Having said that, a senior team who always stays the same isn’t necessarily a good thing. What is important is the effectiveness of the higher-ups. Arrange a meeting with a senior contact from your supplier, and find out about the state of their senior management. Ideally, they should have a growth plan in place for all their current executives, and have a range of skills that are in-sync with the demands of the modern market.
The Global Economy
This is a risk factor that’s out of your hands at the end of the day. However, that doesn’t mean you can’t mitigate the negative impacts of geopolitical shifts, or that you can afford to ignore this particular factor. Greece continues to be very volatile, European currencies are on a steady decline, almost parallel to the US dollar going up. With so many different and constantly changing factors, it’s essential that you understand how your core suppliers are exposed to these risks, and what geopolitical trends mean for the future. Let’s say that you bought from a lot of companies which were based in Europe. As currencies decline, and demand grows weaker as more and more western companies buy from the far East, it’s likely that you’ll experience a decline in your top line. It’s essential that you understand the impact these factors will have on your supplier, and therefore you, and the best ways to prepare for them.
Responsiveness to Regulations
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Regulations are a thorn in the side of countless business owners, especially in the way that they’re constantly changing. Although no one likes it, it’s important to make sure your supplier is able to stay clued-up with these regulations, and are making the necessary changes on time. I’m sure I don’t have to tell you how damaging it could be to your whole supply chain if and when your supplier was found to be operating outside of industry regulations! While this is a prominent risk factor no matter what kind of industry you’re in, it’s a particularly big concern for companies in the financial services niche. Bodies such as the FCA and SEC have been introducing stricter and stricter regulations for some time now. You may remember the string of controversies involving Ocwen Financial Corp which happened throughout 2015.
Multiple-tier Supply Chain Mapping
Like a lot of businesses, yours might be dependent on a core supplier in the secondary sector. If this is the case, and your supplier is dependent on their supplier, you need to be worrying about their supply chain management process, along with your own. In order to understand the risks which stem from your second and third tier suppliers, it’s important to map out the various interdependencies which thread through your supply chain. If there’s one sector that does this better than any other, it’s the auto industry.
Fraud and Ethical Misconduct
As I’m sure you’re aware, businesses of various sizes and niches have been moving the bulk of their supplier base to countries in Latin America and Asia. There’s a massive advantage in the way that this can optimize costs. However, there’s a darker side to it as well. Shifting supplier bases to these far-flung areas can often expose you, the buyer, to the risks of fraud and ethical misconduct stemming from the supplier. This can be a minor violation of labour laws, all the way up to things like human trafficking, the lack of an independent board, severe wage disparity and so on. If it looks like you’re going to be moving your supplier base to S. America or Asia in the foreseeable future, it’s essential to make sure your suppliers have policies in place which ensure their compliance with local laws, and that it all fits in nicely with your code of conduct.
Environmental Risk
Finally, we have a risk factor that’s only really become a big concern over the past couple of decades. Suppliers, in various cases, can be one of the main factors which determines your overall environmental impact. As I’m sure you’re aware, poor environmental management from anywhere in the supply chain can cause a massive blow to a business’s reputation. It’s important to understand both how your supply chain impacts the environment, and the best methods of mitigating the negative impact. If your key suppliers aren’t doing much to keep their carbon footprint to a minimum, then this is something that needs to change immediately! A lack of these “green” policies can not only hurt your reputation, but may also tempt regulatory sanctions.
