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Updated: 4th March 2021

Top Tips for Mitigating Supply Chain Risk and Avoiding Bad Debts

For many businesses the truth is that they are only as good as their supply chain. Regardless of how good their product is if they cannot successfully manufacture it, ship it and supply it in the right amounts at the right time, then their business could be doomed to failure. The accumulation of bad debts can then be an inevitable consequence of supply chain issues resulting from the late or non-payment of suppliers and shipping companies.

So what are some of the most common risks to a supply chain and how can you attempt to mitigate these?

Maintain alternative sources of supply

If you rely heavily on one single supplier then you could be opening yourself up to higher levels of risk than if you were to spread procurement between several suppliers. This does not necessarily mean sourcing the same component from differing suppliers (although don’t rule this out as an idea if feasible), but if you are reliant on one single company for the majority of your supply, then you could be leaving yourself wide open to risk if they were to experience difficulties. It may be worth looking into sourcing secondary suppliers, who you could initially use for just a small amount of your requirements, but could then increase supply quickly and efficiently if required.

Don’t forget second and third tier suppliers

When looking to mitigate supply chain risks it is important that you also consider second, third and even further down the tier suppliers. These are the companies who may not be supplying you directly, but are supplying your suppliers and on whom your business could still depend. You should ensure that when entering into any agreement with a supplier you also thoroughly evaluate and assess their suppliers and so on.

Evaluate and monitor environmental and geopolitical factors

Obviously you cannot plan for every eventuality, but there are certain areas and locations that could be seen as more volatile than others. Consider an area’s recent political history or it’s susceptibility to natural disasters such as hurricanes and earthquakes. There is no way of completely mitigating all risk, but some suppliers may have higher levels of mitigation strategies to these more common risks than others, meaning that if the worst does happen they are able to weather the storm more successfully and thus result in a lower impact upon your business.

It is also important to consider cultural norms and any specific local laws that could affect your supply chain. For example you should consider the local calendar and avoid placing large orders just before a period of national holiday, and also ensure that your supplier is not breaching local working practices or laws in order to fulfil your order.

Continual monitoring

When monitoring your supply chain it is important to remember that this should not be an annual event, but more of a continual process. Many signs of impending difficulties can be much more successfully managed if they are spotted early. This could either give you time to identify and locate a new supplier or to work with your current supplier to support and maintain the integrity of their service.

Make back up plans

Although planning for the worst may seem a little overly pessimistic, if you can identify practical Plan B’s for if you do have a serious problem with your supply chain then, this may not completely solve the problem, but it might take some of the panic out of it. As we have already stated identifying and already working with alternative suppliers is always a good idea. Also if your cash flow allows it, consider holding buffer stock, often in a different location that is served by a completely separate supply route.

Ensure that you have all of the information that you need

There is no point in putting in the time and effort to effectively evaluating and monitoring your suppliers if you are relying on incomplete or out of date information. Companies such as Red Flag Alert continually monitor all of the available information about the status and health of millions of companies, allowing you to see at a glance exactly how they are faring and whether you should be putting your trust in them.

If serious issues with your supply chain are adversely affecting your business, then contact the business rescue experts at Real Business Rescue. With almost 30 years’ experience helping companies in financial difficulty, our advisers will take the time to get to know you and your business before explaining your options and helping you to come to the right solution. Contact us now to arrange your free same day meeting at one of our 100 Offices.

Jonathan Munnery


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