Note: This post was originally published on OPEN Forum and published here with permission.
In today’s precarious economy, you need to be concerned about more than your own company’s health. You also have to pay attention to the state of your suppliers’ affairs. When a struggling vendor goes out of business, you might find yourself scrambling to fulfil your own orders. And, of course, even a solvent supplier can experience a major disruption due to flooding, a fire or another calamity.
The consequences for your business, however, can be dire—anything from lost sales to a more substantial threat to your bottom line. “Losing a supplier potentially is a very, very serious problem, and it can make or break a company,” says Ken Gaebler, a small business expert and head of Gaebler Ventures in Chicago.
Sure, it's tempting to streamline operations by reducing the number of vendors you use. But you're better off spreading the wealth and having at least two suppliers of an important product in your arsenal. That way, you hedge your bets in case one vendor can't come through.
It's best to evaluate how important specific suppliers are to your company. If you determine that losing one would result in more than a 5 per cent drop in profits and would hurt cash flow and future business potential, then it's vital you look for back-up providers.
If you lose a supplier and you haven't already found a substitute, however, then your only choice is to find other vendors--quickly. Start by contacting trade associations and bankers for recommendations.
According to Gaebler, you might be able to get insurance that protects you from a service interruption.
Or, you can try to require that your vendors arrange for such coverage for themselves, so a disaster will be less damaging to them and, as a result, to you.
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