Supply chain and your business
Keeping a close eye on your supply chain is a critical success factor. Companies operating locally, nationally, and internationally can be brought to a halt if supplies to produce their products evaporates. That’s why it’s important to assess the risks and plan for them. Consider any weak links in your supply chain and make alternate plans should a supply draught occur.
Know the risks
The three most common risks for suppliers are:
- Legal. Stay informed of any potential legal conflicts impacting your suppliers that could adversely affect their ability to earn revenue or continue serving you?
- Political. Are any suppliers located in a politically unstable region — even nationally? Could the outcome of a municipal, state or federal election adversely affect your industry’s supply chain?
- Transportation. Weather can negatively impact travel. How reliant are your suppliers on a particular type of transportation? For example, what’s their backup plan if winter weather shuts down air routes for a few days? What about natural disasters? Are your suppliers located in regions where wildfires or mudslides impact delivery?
The consequences can be devastating
The potential fallout from an unstable supply chain can be devastating. Obviously, first and foremost, you may be unable to timely procure the supplies you need to operate profitably.
Beyond that, high-risk supply chains can also affect your ability to obtain financing. Lenders may view risks as too high to justify your current debt or a new loan request. You could face higher interest rates or more stringent penalties to compensate for it.
What can you do?
Just as businesses face many supply chain risks, they can also avail themselves of a variety of coping strategies. For example, you might divide purchases equally among three suppliers — instead of just one — to diversify your supplier base. You might spread out suppliers geographically to mitigate the threat of a regional disaster.
Also consider strengthening protections against unforeseen events by adding to inventory buffers to hedge against short-term shortages. Take a hard look at your supplier contracts as well. You may be able to negotiate long-term deals to include upfront payment terms, exclusivity clauses and access to computerized just-in-time inventory systems to more accurately forecast demand and more closely integrate your operations with supply-chain partners.
Lasting success
Here at Ciuni & Panichi, Inc. we have been helping businesses achieve success for over 40 years. Our professionals provide the right advice at the right time. A solid supply chain fortified against risk is a must and we can help you ensure that your supply chain has the advantages necessary to keep your business flowing. If we can help your business, please contact George Pickard, CPA, MSA, Audit and Accounting Services Department Principal at 216-831-7171 or by email here.
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