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5 Ways to Secure Your Supply Chain

Mark Edwards
Mark Edwards

Ensuring your supply chain is running smoothly is critical to the success of your business.

Businesses focused on global expansion loathe uncertainty. Unfortunately, they're encountering a good deal of it as international markets lurch with every big shakeup on the frenetic geopolitical stage. Trade complications between China and the United States aren't resolved, and Brexit continues to languish — among other unpredictable, unforeseen problems.

These quandaries all contribute to a slowing business cycle that will eventually affect a wide range of industries with a variety of challenges, whether directly or from a trickle-down effect. Small businesses, specifically, may not have the capacity to survive significant disruptions to their supply chains, so preparing for all possibilities has never been more critical. 

With modern communication technologies, commerce is more globally interconnected than ever, and this will only continue to be more true with time. National borders do not limit the economic, environmental, and technological statuses of many countries around the world. That said, businesses of all sizes must prepare for uncertain markets and look beyond short-term factors, like immediate costs, to successfully navigate supply chain risks.

Global supply chains were mainly relevant to manufacturing companies in the past. Without the right supplies (which often came from overseas) a business couldn't create its products. This is still true today, but supply chains have now expanded to include intangible goods like data along with their physical product offerings. As a result, a much wider spectrum of industries is affected by supply chain risks, and this is especially important for small businesses.

As of 2017, data is the most valuable commodity in the world, measured by both volume and monetary value. When we see data breaches, we truly see a breach of the supply chain. If a company has to shut down its data mines or data warehouses to fix a breach in security, that doesn't only affect Google Analytics. It affects companies that are relying on that data to run their daily operations. 

When global shipping technology company Pitney Bowes fell victim to a ransomware attack and had to shut down internal systems, a huge number of companies far beyond it were disrupted. The business claims to serve 1.5 million companies around the world — including 90% of Fortune 500 businesses — so the ripple effect was massive.

Further, its shipping services are frequently used by sellers on platforms such as Etsy and Shopify, where customer service is personal and highly important. Ultimately, this disconnect caused a number of customers to publicly complain that they couldn't perform even basic tasks. Our terminology and basic understanding of suppliers have shifted as companies in the chain become more interconnected around the world. The term "supplier" is now being used across various industries, expanding which businesses classify it as part of their operations.

In September 2019, Britain's Thomas Cook, the oldest travel agency, collapsed, and the failure affected far more than just that business. Hundreds of thousands of individuals and businesses were impacted by the bankruptcy, and the British government spent millions on Operation Matterhorn, which worked to get stranded travelers home. Ultimately, the singular company was a supplier to these travelers, and its failure to deliver on services that had already been paid for left a trail of disruption.

Uncertainty is unavoidable. But what can business owners do to mitigate risks and prepare for potential disruptions? Here are five strategies that will help protect you and the part you play in the international supply chain.

As with any complex issue, understanding all the working parts is step one. Environmental, economic, and technological factors can all wreak havoc on supply chains and international commerce.

Environmental factors are typically natural disasters, extreme weather events, geopolitical conflicts, and trade restrictions — whereas economic issues are political or economic changes, especially sudden ones. And technological concerns are failures in transport or information infrastructure.

 Right now, Brexit and the trade war with China are two of the hottest topics affecting U.S. markets. Some industries and many businesses are already seeing the effects of these complications, but not everyone has felt the blow. All U.S. business leaders need to understand not only the current status of these situations but also how they might eventually trickle down to affect their specific supply chains.

2. Pay special attention to small businesses and early-stage companies. 

Startups and small businesses are an ever-growing part of the economy, fueling job creation with innovative solutions. They're infiltrating areas that were previously controlled by large corporations, such as cloud computing, software engineering, and product design. This development is shaping supply chains across the U.S.

However, there is some risk with young companies: They might not stand in the face of problems as well as long-established companies that have the resources to withstand the test of time. If you choose to partner with a startup or small business supplier, make sure to put them through thorough vetting before signing any agreements.

3. Don't rely on one supplier. 

The need to identify your business-critical and sole-source providers and invest in a secondary provider wherever possible is clearly critical. Should something happen to the primary provider, you need a fallback. Ideally, never have more than 30% of your supplies dependent on a single partner, and don’t place the fate of your business in one partner halfway around the world.

In some cases, even the big names fall. When Hanjin Shipping, one of the largest shipping companies in the world, went bankrupt, shipping capacity fell by 3%, with over $14 billion worth of cargo that was unable to dock. Businesses that depended entirely on that cargo were hit hardest by these losses. 

4. Review suppliers frequently. 

You should already have regular performance reviews with your suppliers, but make sure they include frank conversations about their financial health. Bankruptcy, in particular, is the ultimate supply chain risk, as a company will no longer be able to provide you with goods or services.

Just like with individuals, a supplier's credit is a significant indicator of its reliability and the amount of trust you should place in it. Also, focus on making your own credit a high priority. Pay your bills on time. Set a good example, and be a reliable company. Doing so will build a partner's trust in you and can even lead to potential discounts and inside pricing as part of a lasting relationship.

5. Evaluate and update current policies. 

Procurement has always been important for businesses, but legal requirements, as well as stakeholder and consumer expectations concerning due diligence and risk screening, are increasing. Procurement now requires deeper dives into supply chains and better tools for analyzing data and enhancing visibility.

In fact, many companies are establishing procurement departments to make sure all concerns affecting risk mitigation are covered. This can include evaluating data securities and overall financial health within the company, as well as current and potential suppliers to make sure they're compliant with company ideologies, such as ensuring that the business is not inadvertently supporting human trafficking.

Unless you've found a way to predict the future reliably, uncertainty will always be a part of running a business. But by implementing the right strategies, you as a small business owner can manage risks that affect supply chains and rest easy knowing that you will have the goods and services you need to continue running a successful business — whatever circumstances come your way.

Image Credit: Komonchai Mattakulphon/Getty Images
Mark Edwards
Mark Edwards Member
Mark Edwards is the managing director at Creditsafe USA and a registered Global Credit Professional with a history in business information. He has years of experience in portfolio management, credit and risk solutions, and business development.