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Your Business - Supply Chain Security

What happens if you lose a supplier?

It's Your Business
Welcome to Your Business, our blog series that contains more advice and less metaphors. Each post will try to cover a subject that affects your business. You can find more of our Your Business series here.

The Takeaway
You rely on your suppliers, vendors and service providers. If something happens to one (or more) of them, your business can and will be negatively affected. Is your business ready?

When we refer to "suppliers" we mean suppliers, vendors, service providers, etc.

Diagnosis: Trouble
We don't want to diminish the human toll the COVID-19 virus has taken on the people of China and around the world. This outbreak is impacting hundreds of millions of people worldwide. So far they are closing in on two thousand deaths, and tens of thousands of families affected.

Governments in Asia are enacting restrictions and quarantines to help prevent the further spread of COVID-19. This means hundreds of millions of people cannot go to work. And many companies have chosen to close manufacturing, retail and office locations, asking staff to work from home if possible. This is hurting the Chinese economy and has trickled down to the economies of other countries as well. The downstream effect on businesses around the world is significant. COVID-19 will have lasting effects on 2020 performance and earning reports.

It's not just factories, stores, and offices who are being affected in Asia. It's tourism and small businesses too. Many restaurants, bars and other entertainment establishments remain closed. People are encouraged to stay home and stay safe.

How This Affects You
Whether your business is B2C or B2B, your supply chain — including your internet-based service providers — is part of your lifeline. If you rely on just in time inventory, any supplier disruption can shut down parts of your business in short order. This applies to resellers as well as manufacturers.

Ask yourself, "What would I do if one of my critical suppliers were no longer able to provide what our business needs? Even if just temporarily?" This question, and your answers, should be part of your Business Continuation Plan.

You can read more about the importance of Business Continuation Plans and Disaster Recovery Plans in The Spanish Inquisition.

Think Fast
Are you ready for a supply chain interruption? It's always easier to have your answers ready in advance. You don't want to have to make difficult decisions in the spur of the moment.

Can you answer these questions?

  • How strong is your loyalty to your suppliers?
    • How long are you willing to wait before switching to an alternate supplier?
    • Do you know who you're going to switch to for each of your current suppliers?
      • Can they handle the sudden increase in demand from your business?
      • What about servicing the other businesses that find themselves in the same situation as you are?
    • If you switch to an alternate supplier, when will you switch back? Will you?
  • The COVID-19 virus is an extreme example. What happens if one of your suppliers is affected by a fire? Or an infrastructure failure? There are a lot of things that can cause business disruptions.
  • What if one of your suppliers is crippled by a ransomware attack or a data breach?
    • Was any of your data exposed during the ransomware attack or data breach?
    • Recovery time from a ransomware attack or data beach can vary considerably based on the preparedness of the victim.
  • Do you rely on parts or components made specifically for your company?
  • Have your products been designed around a specific component provided by a supplier?
    • Are any of your parts or components restricted to one source due to patent or intellectual property rights?
    • How much inventory do you have on hand?
  • What if it's just your internet provider? Is that enough to knock your cloud-based system access offline?
    • Are you using a cloud-based phone system or internet-based email?
    • Is there an alternate internet service provider available in your area that can meet your needs?
    • Are you ready to reach out to your customers if your phones or internet goes down?

No matter how strong your loyalty is to your current suppliers, you should already know which alternate suppliers are available just in case something happens. That doesn't make you a bad customer; it makes you a good business owner.

If your business is forced to switch suppliers — even temporarily — your supplier will understand because they want you to stay in business. If you go out of business while one of your primary suppliers is unable to meet your needs, you won't be able to give them your business once they return to normal operations.

Now It's Your Turn
Your commitment to support fellow small businesses can make answering the questions in the previous section hard. But what if the shoe were on the other foot? What happens if your business suffers a significant interruption? Or what if one of your suppliers has troubles, preventing your business from serving your customers' needs?

Ask yourself the same questions from the previous section, but with your business at the center of the disruption.

  • How loyal are your customers? Will your customers come back to you if forced to find an alternative?
    • If you suffer a lengthy business interruption, could it cause one or more of your customers to close down?
    • Can you afford to lose many of your customers?
  • What happens if your company is hit by the flu? Can your business adequately provide your products/services to your customers?
    • Can you bring in temporary workers who can help you, or will your high-knowledge and high-skill positions be hard to fill?
    • Will cross-training your current employees help prevent this type of dilemma?
  • What if you were affected by a ransomware attack or data breach? Will this undermine your customers' confidence in your ability to manage data, including theirs?
  • Are you supplying custom or special-order products to any of your customers? What happens if your inability to provide their components puts them out of business? Can you afford to lose them as a customer?
  • What if your internet goes down? How long can you survive? Do you have a plan to contact your customers or to operate without internet services?

Other things to think about if your business is ever affected by a business interruption:

  • Does your business have enough cash reserves to cover your fixed expenses and payroll during this type of event?
    • How accessible is a line of credit or business loan?
    • How understanding will your suppliers be if you cannot pay on time?
  • Will you be forced to have layoffs?
    • This isn't only for the sake of your staff. Your business will suffer if the laid off employees are no longer available once you begin re-staffing.
    • Not only will you have lost good employees (and institutional knowledge), but you'll need to train new people (which increases expenses and reduces productivity and efficiency).
      • Remember that layoffs always have negative effects on the morale of remaining employees.
      • Layoffs always impact productivity and efficiency.
    • Will any of your remaining staff leave to prevent losing their job in the next round of layoffs?
  • As the business owner, what cuts/sacrifices are you personally willing to make?
    • Will you defer or forego your salary to be able to keep staff during this time of crisis?
    • Will you ask the same of your managers?

These questions, and your answers, should also be part of your Business Continuation Plan.

In case of a major disruption of your business you'll need to make hard decisions to best ensure your business' continued viability. So, don't put off asking these questions until you need the answers.

You want to avoid layoffs if at all possible. Losing good people who think they may be next is a reality, if only to avoid competing with their former (and possibly current) coworkers for available jobs.

What if something happens to one of your competitors? Are you prepared to swoop in and pick up some of their customers if the situation arises? Do you have a plan to scale up quickly?

Both Sides of the Coin
Almost every business is dependent on suppliers and serves as a supplier to their customers. This makes the relationships with your suppliers and customers so important and potentially fragile.

The situations covered in this post are serious topics business owners need to consider. And remember, other businesses rely on your business, which relies on other businesses, which rely on other businesses ...

In the end we all rely on preparedness.

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