Safeguarding your supply chain
The ongoing COVID-19 pandemic has taught us many lessons, one of which is that diversification is one of the key elements in the ongoing success of a business. In this case, we are talking about diversifying your supply chain, because as we have seen recently, when supplies dry up, revenue plummets.
Supply chain risks for your business
It goes without saying that if your business is reliant on a sole supplier, you are likely exposing your business to significant risk. Even if that supplier is in Australia, they can raise their prices or go out of business themselves. This leaves you struggling to find a new supplier while your customers are waiting on their orders. If your supplier is overseas, as we have seen recently with suppliers in China, then disruptions in these overseas countries can have a seriously negative effect on your business.
So as businesses everywhere struggle with the ongoing pandemic, it’s a good idea to review your suppliers and look at strategies for diversification. Start by identifying the risks to your supply chain. For example, we all remember the toilet paper scare in Australia where supplies dried up practically overnight. The supply chain couldn’t keep up with demand and vendors were left empty handed.
An unusual increase in demand, that might at first seem to be a bonus for your company, can leave your business unable to trade due to a lack of products. Another problem can be that your supplier can’t get hold of the materials to manufacture the products. There’s also the risk that overseas suppliers can be caught up in regulatory issues in their own country or go out of business for a variety of reasons.
Diversification is key to your ongoing success
The result of any disruption to your supply chain is a loss of revenue, which if it’s ongoing can lead to a reduced market share, as customers turn to other vendors. Even if your supply chain recovers, you might have lost these customers for good to your competitors. There’s also the problem of trying to find new suppliers at short notice, because this can reduce your negotiating power and result in inflated prices. Don’t forget that if you have been contracted to supply a certain volume of product to a third party then you can actually be sued for breach of contract, which is a whole different problem. Finally, your company’s reputation can be severely damaged due to the inability to supply products to customers.
On the other hand, if you diversify your supply chain, you reduce all of these risks. In the event that you need to replace a supplier, you can still receive products from your other suppliers while you work at the problem of finding a replacement.
As well as diversification, it also pays to minimise your risks with the right type of insurance. Business Interruption Insurance can help mitigate your losses if you can’t trade due to a disruption in your supply change, whilst Product Liability Insurance can help if there’s a problem with the quality of one particular product.
For help identifying the risks your business faces due to your supply chain, talk to an insurance specialist today. Contact Steven Thomas now.