Procurement is a common function in most organisations, and the process of purchasing is usually routine and carried out with a standard operating procedure. However, as the procurement cycle involves many steps, it is definitely susceptible to a host of problems, not least in the area of the supply chain. A supply chain disruption is any occurrence that has negative consequences for regular business operations, causing some degree of confusion or disorder. A disruption in your supply chain can be due to many factors, among them natural disasters, power outages, ineffective or late deliveries, and other unexpected complications. These disruptions, if not managed effectively, can have costly consequences for the business. Here we discuss ways to strengthen your supply chain to reduce the possibility of bottlenecks and interruptions occurring, thus ensuring a smooth procurement cycle.
Why having a strong supply chain is important
According to a recent study, almost half of corporate insurance experts surveyed listed business interruptions relating to supply chains as the top risk for businesses everywhere. This tells you that there are many things that can go wrong when it comes to critical business operations such as procurement, and that it’s imperative that you are prepared to manage any disruptions to the procurement cycle that may arise daily. The most basic manner of having a strong supply chain is to know the procurement cycle and all the stakeholders involved in it inside out. As the saying goes, knowledge is power, and when it comes to supply chain management, knowing how prepared your suppliers are when business disruptions arise, and putting in place contingency measures such as having alternate sources for materials, manufacturing, and transportation needs when your primary supply chain is unavailable, is essential to business continuity. There are bound to be uncertainties in business processes, and that’s why supply chain management should be a key priority in any establishment.
Recognizing the main links in your supply chain
To strengthen your supply chain management efforts, start by testing the strength of your supply chain by identifying who your critical suppliers are and arranging them in order of importance to your business operations based on the disruption that could arise should they encounter problems. You can finalise your list easily as long as these questions are answered:
- Which are the products or services that you most depend on the most to ensure that business operations continue to run smoothly? Who are the suppliers involved?
- Are there any time-sensitive activities, services, devices or systems that when failed or disrupted would severely interrupt your business operations? Who are the suppliers involved?
- Are there specific products or services for which your supplier’s inability to deliver goods or services would cause a bottleneck in your operations? Who are those suppliers?
- Do you have any suppliers who are the sole distributors of the products or services that you require? Do you have any alternative suppliers that you can depend on in the event that those suppliers are unable to deliver or go out of business?
To ensure that you always have on hand the products or services critical to your business continuity, it’s imperative to have all the information above so that it becomes easier to detect supplier issues before things get out of hand. A good way to do this is to regularly communicate with management, and especially staff members, who, being those constantly on-the-ground, would know best the minute details of the procurement cycle.
Evaluating your supply chain links
Having identified your key supply chain links, the next step would be to determine which natural and man-made hazards they are susceptible to, and ensure that there are business continuity plans in place. To help you do that, these are the things you should consider:
- Identify the locations of your key suppliers and be privy to what natural and man-made risks they are likely to face. A supplier should ideally have business operations in multiple locations to mitigate risks to location-based disruptions.
- Do your key suppliers have a business continuity plan? Discuss with your suppliers on the possibility of redirecting their business to fulfill your needs for a product or service in the event of a disruption.
- Check with your suppliers on whether they’ve experienced any disruptions in the past five years, and understand the methods they used to manage those disruptions. It’s also helpful to understand how the disruptions affected their customers/clients so that you can come up with a foolproof contingency plan.
- Cultivate a proactive, close relationship with key suppliers to be in the know on problems they may face, and help them to minimize potential disruptions.
- Discuss with your key suppliers the possibility of stockpiling a product that is imperative to your business operations and ensure that they are capable of providing it to you, despite any interruptions.
- Identify other ways to minimize possible supply chain disruptions, such as including a “failure to perform” clause in the procurement contract, to protect your business operations in the event of a disruption.
Reducing the possibility of cascading failures in your suppliers
Disruptions to business continuity can vary by business, sector, and geography, but the probability that your supply chain will be affected is high. Knowing this, business owners must understand that the supply chain forms a critical part of the business and should be considered seriously when planning for business continuity. One of these considerations involve getting your suppliers to manage their own business risks. Because the procurement cycle involves a number of stakeholders and processes, there are many interdependencies in the supply chain. Consequently, businesses must implement measures to ensure that their suppliers also manage their own supply chain risks. This can be done by verifying that suppliers have put in place a business continuity plan, and encouraging them to identify and assess their own supply chain risks and take steps to reduce them. Supply chain management is immensely important today, especially since businesses are increasingly sourcing for products and services on a global basis. Both businesses and suppliers must be equipped and ready to cope with uncertainties and supply or price disruptions buy taking a holistic approach to supply chain management. This entails managing risks that may present itself throughout the entire procurement cycle, from the point of purchase to when the product or service is delivered.
We here at ThunderQuote hope that these tips on how to strengthen a supply chain has been useful to you, as a disrupted supply chain brings a huge negative impact for the business. For more related articles, head on over to ThunderQuote today.
ThunderQuote is the most comprehensive business services portal in Singapore, Australia and ASEAN , where hundreds of thousands of dollars of procurement contracts are sourced every month by major companies like Singapore Press Holdings, National Trade Union Congress and more.