Critical suppliers: what if they’re gone?

Supplier dependency is often a business continuity blind spot for companies. However, have you ever wondered what might happen if one of your most critical suppliers were suddenly unable to provide you with its goods or services, due to a problem of some kind? In this article, our aim is to make you aware of this aspect, which should not be overlooked. We will guide you through the best practices to adopt in your company, so that you are better prepared for any eventuality with your suppliers.

 

What is a critical supplier?

First, let’s start by defining what a critical supplier is. This term refers to an external organization that provides services or delivers goods that are essential to certain business activities. If these services or goods cannot be provided, the consequences can be very significant for a company’s ability to maintain its operations.

 

Best practices to implement

There are several practices you can implement within your organization to limit the consequences of a service interruption by one of your critical suppliers.

 

Draw up a list of your suppliers

The first step is to list all your suppliers and associate them with an activity within the company. Once this list has been established, it’s important to rank them in order of importance, to better target which ones to deal with first if a situation arises.

 

Checking contracts

Next, pay particular attention to the clauses found in the various contracts you have with your suppliers. Among these clauses, pay particular attention to recovery times, service times, compensation and penalties if the service or good cannot be maintained. It’s always better to be in the know.

It’s crucial that a force majeure clause be included in every contract. This generally serves to dispense with performance of a party’s contractual obligations if specific independent events prevent said performance totally or partially.

In addition, make sure you review your contracts with your legal department to ensure that the process is properly supervised.

 

Confirm whether your suppliers have plans for business continuity, IT back-up or in the event of a cyber-attack

Just as your company may have a business continuity plan, so too may your suppliers. It’s important to have discussions with them to find out how they will deal with your company if their activities are interrupted at any time. These same validations must be carried out with regard to the IT disaster recovery plan and the cyber-attack plan.

In the event of an interruption to their operations, you can also check with them whether they are able to recover more quickly than initially envisaged in their business continuity plan. However, this may involve additional costs.

In short, these discussions with your suppliers are a good opportunity to showcase your negotiating skills, while keeping in mind the relationship you’ve built up with them over the years.

 

Stay in prevention mode

To reduce your dependence on critical suppliers, here are a few questions you might want to ask yourself:

• Are there any items you can manage in-house until the supplier can get back up and running?
• Should you keep a slightly higher inventory of certain products (e.g. highly specialized products), in case of a temporary loss of supply?
• Should you adapt your sourcing strategy by varying your suppliers, thus spreading the risk across several suppliers?
• Should you establish thresholds determining the maximum dependence a supplier can have on your most critical operations, to avoid concentrations of risk?
• Should you set up a bank of alternative suppliers you can contact in an emergency?

 

Conclusion

Supplier dependency is an often-overlooked business continuity issue for companies. A proactive approach is needed to strengthen the resilience of organizations to supplier-related hazards. If you would like expert advice and customized assistance in carrying out this assessment within your company, please contact us via [email protected].