It's important to consider your company’s risk exposure when entering into a business relationship with a third party. How will your operations be impacted when a supplier is late delivering essential materials? What if you receive damaged materials? There are a number of options that can be implemented to mitigate risks associated with your supply chain.
In order for your supply chain to function at its optimal level, you have to ensure that your suppliers are consistently meeting your demand and following the terms of your contract. If not, your operations will be continuously setback, worst case leading your company to halt operations or even bankruptcy.
In 2013, Target rapidly expanded by opening 133 stores across Canada, but had to file for bankruptcy after just two years due to continuous supplier problems. The chain didn't properly assess the supplier issues that came into play when entering into a foreign market.
Here are a few tips on how to make sure your company doesn't make the same mistakes as Target.
1. Research Your Prospects
Know where your potential suppliers stand in the marketplace. Find out how they've reacted to recent economic events such as inflation, trade agreements, etc. Do your research and keep an updated catalog of your suppliers so that you can determine the risks that they may impose on your business.
2. Ask the Right Questions
Use the information that you’ve gathered to ask the potential supplier relevant and important questions. The types of questions that you ask should be based on how the potential supplier is able to mitigate the risks that are associated with doing business. You want to determine if entering into a business relationship with them is worth the risk or not.
- Prepare a questionnaire to ensure you receive enough information to make an informed decision.
- What’s their dependency ratio, i.e. what percentage of your business is the suppliers total revenue?
- Can they provide a liability insurance certificate?
- What current legal action is being taken against the supplier that could impose risk on your business?
3. Verify Your Information
Always verify the information you've collected is accurate. Ask the supplier for references, or independently find companies that have worked with the supplier. Follow up with these references to verify your information.
Follow the link here to the Supply & Demand Chain Executive checklist to protect your supply chain from supplier risk.