Does it ever feel like your supplier network is held together like a house of cards? Would your business survive if one or more of your key suppliers went out of business overnight? If your small business is dependent on your suppliers then you need to take the time to understand the risks of doing business with them.
Small businesses are extremely susceptible to supplier risk due to their size and financial strength. One failed risk of your suppliers can be the difference between success and failure. Take for example a local restaurant, partnering with a local farm to supply the organic produce. What happens if that local farm goes out of business? How quickly can you get them replaced and at what costs? Your whole menu many need to change as well as the pricing. A new supplier could add tremendous costs due to transportation, less negotiation power and less capacity. The financial impact could be devastating to a small restaurant.
Supplier risk is an area that is often talked about at large companies, but difficult to implement at small businesses due to the complexity and lack of expertise. Most small businesses don’t have all the resources available to comprehend all the issues that can interrupt your supplier deliveries. Here are three areas small businesses should be address when considering partnering with suppliers:
- Financial strength – just how viable is your supplier financially? Partnering with suppliers that are financial unstable is equivalent of adding another bottleneck in your company. These suppliers are unable to fill your requests timely and can cause lost sales due to their inability to fill your demands. This can be a huge constraint to growth if you allow it. Due diligence is key here.
- Quality – small businesses are often at an extreme risk due to supplier performance. Lacking key resources likely results in completely being dependent on the quality performance from their suppliers. But how often are they able to investigate these suppliers? How confident are you that your suppliers can maintain a high level of performance over time? Watch closely for the warning signs such as quality failures or late deliveries.
- Location, location, location – just like real estate, the closer your suppliers are to your small business the better. Transportation costs and times are shortened when partnering with local suppliers. Political issues, weather delays and fluctuations in fuel help to minimize the risk impact due to local suppliers. Shorter delivery times also allow for decreased inventory further minimizing your risk. There are very few downsides to being able to work with local suppliers.
These are just a few of the areas small businesses can use to lower risk in their suppliers. Of course, there are many other factors that can affect small businesses such as natural disasters, economics, labor strikes, political issues, currency values, technology and social media to name a few. While it is impossible for small business owners to investigate every factor that can create risks, it is best if you invest your efforts into the areas you can control.
If you know of any small business owners that could benefit from a risk assessment of their supply chain please email firstname.lastname@example.org for more information.
Question: have you ever had any suppliers negatively affect your sales?