It’s time to get proactive about supplier risk
Running a business can often feel like a plate-spinning exercise.
There are many drivers behind the growing complexity and dynamism that increasingly characterise business continuity and modern supply chains. Customers and end users want more speed and transparency, while buyers deal with the logistical and legal challenges of globalisation. Expanding supplier networks stretch supply chains over longer distances, crossing many distinct jurisdictions and business cultures along the way.
Adding to this complexity are trends such as process customisation and the high speed of technological turnover. There are many benefits to building more dynamic and global supply chains. They allow companies to access a much wider range of materials, expertise, resources and customers.
However, it can also increase your operational vulnerability and open you up to a range of disruption. As a buyer you may have a business continuity plan (BCP) in place to make sure you are always prepared for any unforeseen delays and problems.
But, can you be sure your suppliers have the same checks and plans in place? Can you be sure that every link in your supply chain is as prepared as you are?
The importance of BCP
Creating a plan for business continuity means not only identifying the factors that could impact your ability to operate to your full potential, but also putting in place a system of responses that protect the interests of key stakeholders, your reputation and your ability to generate revenue.
Creating an effective BCP requires accurate and methodical analysis of your own business, as well as the other companies that you depend on. If you rely heavily on a particular supplier and they hit a bump in the road, are you going to be able to honour the rest of your obligations?
The importance of preparing for supply chain disruptions as part of your business continuity planning is not a niche issue that only a handful of companies face. Data from the Business Continuity Institute (BCI) Supply Chain Resilience Report 2018 shows that 56% of the 589 companies they looked at had suffered supply chain disruptions in the last 12 months.
The main causes of these disruptions were technology related, with IT outages (53%), cyber-attacks and data breaches bringing many suppliers to a halt. Other common causes are transport network disruption, the loss of skills and employees or adverse weather conditions.
For companies higher up the supply chain, the consequences of a supplier dropping out can be severe. BCI figures show that 62% of companies take a financial hit, while the knock-on logistical and reputational impacts can also prove costly. While 52% of companies suffered a not-insignificant cost (€50,000 or less), for an unlucky 8% the damage ended up totalling between €1 – 10 million.
With so much on the line, you could expect buyers to insist on vendor validation and only working with suppliers with a robust BCP in place. While an increasing number of companies are embedding business continuity into their processes, 30% of companies are not currently analysing the source of supply chain disruptions.
This is a mistake. Having the clearest possible picture of your supply chain is an important first step in making sure your business can protect itself from bearing the brunt of costly disruptions.
Audits and supply chain resilience
A key to understanding the resilience of your supply chain is knowing how well your suppliers are prepared. Our audits are an essential tool to help you and your suppliers understand where you might be exposed to risks.
Audits help suppliers prove their credentials and their capabilities in an externally verifiable way and are a central part of our communities. They help buyers and suppliers work better together by building trust and credibility, on a foundation of accurate and high quality data.
The pre-qualifying questionnaire that suppliers complete prior to joining our communities is an important validation check, but audits are where these claims are actually verified. Buyers can create stronger supply chains that are much more resistant to shocks and disruption by working with companies that have a proven track record. For suppliers, the fact that audit information can be made public to the rest of the community can help drive new business.
We not only pre-qualify suppliers; our audits also give buyers a high degree of oversight and insight across their entire supply chain.
Business continuity planning means expecting the unexpected and knowing what you would do if something occurs to disrupt your operations. But what use is this if you cannot access the goods and services you rely on to operate. You need to be sure that your suppliers are also in a position to continue operations in the event of a disruption.