Opinions expressed by Entrepreneur contributors are their own.
In the 1990s and early 2000s — and most notably since China’s accession to the World Trade Organization on December 11, 2001 — a significant number of companies globalized sourcing and production to reduce costs. In most cases, this meant relying heavily on China, India and other overseas suppliers. According to the Brookings Institution, this move exposed U.S. companies to an increasing number and variety of risks, including geopolitical unrest, labor disputes, extreme weather events and cyber attacks. In addition, the recent global health crisis uncovered additional vulnerabilities in the supply chain, chiefly those caused by reliance on a single country or supplier. In fact, the U.S. Chamber of Commerce notes that many manufacturers are now acknowledging that they cannot and should not rely on a single source for any critical need.
But how to address this?
1. Maintain diversity
Make sure that you have multiple vendors in your supply chain, locally and internationally, and both primary and backup. It’s also important to have a stringent list of criteria to follow when selecting them, including lead time, pricing, a thorough quality audit and a facility tour. And, since it’s best to select a supplier with strengths aligned to your business’s wherever possible, good communication is paramount in order to understand how to select one supplier over another. In my experience, slow response time is the biggest tell-tale sign that a candidate will not fit in a model.
2. Communicate effectively with customers
Honest and open communication with customers is crucial, and the ability to proactively update them requires a strong and experienced support team. One way to stay ahead of the curve is to proactively ask for updates from suppliers: these will help you inform customers earlier in the process whether a material will have a longer-than-expected delivery time. If need be, you can then pursue alternative options.
3. Bake risk management into the process
Risk management can be incorporated into your supply chain process in two ways: a requirement to engage in planning discussions that help minimize fire-drill orders, and diversifying your supply chain so that you don’t have all eggs in one basket. For example, in the natural products industry, it’s best to have two vendors who are great at protein, another two who are good at softgels. Why? Both of these are items that can be challenging to source competitively.
4. Commit to having good data
Train your people, standardize your data structure, and allow your team to add input on solutions you implement. However, you must enforce the procedures put into place; the only way someone is going to know that mistakes have been made is by addressing them head-on.
5. Build strong relationships with suppliers and manufacturing partners
Good relationships start with trust. Remember that suppliers are your partners, so it’s important to take your commitments (e.g., payments) very seriously. In return, expect the same level of commitment from them. Constant but respectful follow-ups (including scheduled times to speak) help to foster this dynamic: this way vendors and suppliers will always know when they need to communicate with you.