A supply-chain disruption can be devastating to a small business.
Nowadays in this global economy, with many suppliers overseas, the risk is even greater that at one point your business may face a disruption from a key supplier.
A survey released in February by GT Nexus found that 40 percent of manufacturers had been impacted by a supply chain disruption in the past 12 months.
“A lot of this isn’t in your control, so you need a backup plan,” says Kaushik Sengupta, chair of the Department of Management and Entrepreneurship at Hofstra University in Hempstead, which offers an undergraduate program in supply-chain management.
Small businesses that don’t have manufacturing capability in-house are increasingly outsourcing to suppliers, many of whom are abroad.
“Usually they go to whoever the lower-cost producers are,” explains Sengupta.
Small businesses might look into getting an insurance policy that covers disruptions, but they should also conduct an “A, B, C inventory analysis,” he suggests.
The analysis breaks down all the items you stock and how critical they are, with A being the most critical, says Sengupta. For each category, have a contingency plan if the main supply goes down.
It’s also important to learn more about your suppliers, and it can be helpful to visit them, he says.
Spectronics Corp. in Westbury, a maker of ultraviolet lighting and fluorescent dyes, has key staff visit its top suppliers generally once a year, says president Jon Cooper. Developing relationships with key suppliers, he says, helped the company avoid a supply-chain disruption a few years ago when a major U.S. lighting company it was using stopped making a critical component Spectronics needed.
Unable to secure it domestically, the company reached out to a reliable supplier in China, providing that firm with a drawing that enabled the new supplier to produce samples of the component within days.
“It could have been a nightmare for us,” he notes, adding that the most of the company’s 450 active suppliers are U.S.-based and he’s willing to pay a premium for quality components domestically produced.
Spectronics’ other measures to protect against disruptions include evaluating key suppliers quarterly via a vendor scorecard it developed.
To be sure, technology has made it a lot easier to evaluate, communicate and collaborate with suppliers, says Bryan Nella, director of corporate communications at Oakland, California-based GT Nexus, whose February study had polled 250 senior manufacturing executives. GT Nexus is a cloud-based collaborative network, similar to a social media environment, where buyers and suppliers communicate.
“To us, the best way of mitigating risk is having better visibility as to what’s going on,” says Nella, noting you can ask a supplier, for example, to virtually share photos of safety equipment at its facility.
Do a supply-chain impact analysis to identify where your suppliers are and determine how that supplier’s product impacts your production, advises Harvey Betan, president of Manhattan-based H. Betan Inc., a business continuity planning and training consultant.
Then do a risk assessment of your supply chain that would include what the risks associated with that product are (such as the supplier’s being located in a flood plain), says Betan.
Once you determine that, you can try mitigating against those risks, which may include identifying a secondary supplier, he advises. If you can’t find a secondary, consider having extra stock on hand, advises Betan.
Also consider asking your supplier if it had any interruptions in the past six months or year and how it dealt with the problem.
“You’re only as strong as your weakest supplier,” says Betan.
Nearly one-third of senior manufacturing executives surveyed predicted currency fluctuations and geo-political risk are the issues that will have the most notable impact on the supply chain in the future.
Source: GT Nexus-State of the Global Supply Chain