With today’s global economy, even supposed “local” businesses can have significant supply chain risks. Just because your operations are limited to one geographic region doesn’t shield you from the effects of a catastrophe on the other side of the globe.
Just ask auto manufacturers, both American and foreign, about the impact of the Japanese tsunami and earthquake. Following these natural disasters, special paint additives available exclusively from one manufacturer in Japan were no longer available. Plants throughout the U.S., from Ford to Honda, were left scrambling to find alternatives or had to drop particular colors from production all together. This not only impacted the assemblers and their paint suppliers, but every other part manufacturer that was held up because the assemblers couldn’t receive their parts while trying to resolve the issue.
The time to consider supply chain risks is before they become an issue. Consider every aspect of your operation and investigate possible chinks in your armor. Some are less obvious than others:
- Natural disasters. Difficult to plan for, but knowledge of local geography helps you uncover which suppliers are at greatest risk for events such as hurricanes, earthquakes and wild fires.
- Company safety records. Do your suppliers have adequate procedures in place and are they followed?Is there a greater risk from many small safety errors or one large catastrophic error?
- Transportation. How reliable are the options within your suppliers’ regions? Are alternate routes of delivery available should standard methods fail?
- Economic health. Are any of your suppliers at risk of going out of business? Do they meet their current financial obligations?
- Unstable supply or unstable demand. Can your suppliers meet expectations if there is a fluctuation in demand? Are they reliable? Are the components they need to produce their own product readily available?
- Political upheaval. Are any of your suppliers in a volatile part of the world? Do they have constraints put on them by their own government?
- Workforce risks. Do your suppliers have difficulty securing talent? Are they prepared for a health crisis, such as a flu pandemic? Are they susceptible to strikes or labor disputes?
Consider this just a starter list. Ultimately, you should understand the inherent risks associated with every supply organization you select. Certainly no small order, but incredibly important. And of course, simply knowing about those risks isn’t enough. Next blog we’ll talk about ways to mitigate and protect.