Protect Your Small Business from Supply Disruptions
It is not just about Black Swan events
As I am writing this, the news of the Coronavirus is dominating international headlines. In the manufacturing and supply chain worlds, everyone is scrambling to assess how this will impact shipments and product supply. How long will it last? How can companies best react?
This event, like the 2010 Eyjafjallajökull volcano in Iceland, is classed as a “black swan event”. The story goes that in the old days, there was thought to be no such thing as a black swan, and it was used as a mythical reference. Then someone saw one. The same goes for those “that will never happen!” events, that actually happen. Like a volcano erupting and closing critical airspace for 6 days. Like an epidemic disrupting the largest manufacturing country in the world.
In 2010 during the volcano event, I was acting as a Supply Chain Risk Manager (yes, that is actually a thing) for a large multinational company. I learned a lot, and saw many examples of what we did right, as well as what not to do. Now I work with small companies and entrepreneurs, and they do not have the big supply chain teams or resources that big companies do to react to these events.
But no matter how small your company is, there is a relatively simple and effective technique that you can use right now, to help your company better manage. And it can be used for any kind of disruption, not just big “black swan”s.
So first, what NOT to do: Do Nothing
In case you think the media is fear mongering, you may be right. In case you think there is nothing you can do to prevent the event from impacting you, you may also be right. Neither is a good reason to do nothing. You need to be prepared, and to be thoughtful about that preparation. Otherwise doing nothing can make the impact much worse for you, your company, and your customers.
Let me give a simple example for this. Maybe the event is predicted to delay your incoming supply shipments for 5 weeks, and you usually get 1 shipment a week. So on week 5, you will get all 5 together. And you figure that will be ok, you can survive until then. But is your warehouse ready to receive all 5 shipments at once? And if all their customers are doing this, how backed up will they be, trying to unload and process them? Are you a priority customer for them, or will you be the last one received?
For companies with more complexity, like buying multiple components from multiple suppliers, there can be risks hiding where you would never think. Maybe you use a local supplier and you assume they are fine. But what if a key raw material or processing chemical is impacted? Have you called them and asked?
“Hope is not a strategy” — Vince Lombardi.
This leads me to what you SHOULD do : Figure out what else could go wrong and plan ahead.
Here is where we lean on the world of risk management, and use what they call a “risk matrix” or “risk heat map”. This is a simple grid where you graph the impact of a risk vs. the probability of it happening. Multiply the two, and focus on anything in the “hot zone” of both high impact and high probability.
This exercise is easy to do, but it is also easy to do poorly. So spend the time and take the effort with your team to genuinely think of things that could go wrong. Then look at what you could do to either avoid them completely, or lessen the blow.
Lets go back to the example of what could go wrong above … your warehouse is overwhelmed. What kinds of actions could you put in place ahead of time? Call them now and find out — can they handle 5X volume at once? What is their plan? Could they unload 1 of the 5 first, as a priority? Where would the rest be held before unloading? Get the agreement now before those shipments show up.
In my risk manager job, I was sometimes asked by execs to come in after a project had derailed, or a crisis had happened. They wanted to know what happened, and how they could avoid it for future projects. In all cases, and I really mean every single one, when I talked to the team they said essentially the same thing “we could see this coming from miles away, but no one wanted to do anything about it.”
Don’t let that happen to you, take some time now to think and plan ahead to better protect your company and your customers.
When should you do this? If you have never done it before, now is the time to gather the troops and get started. If you did it during the last “black swan” event, dust it off and give it a quick refresh. You will be glad you did.
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How anyone can create a good supply risk plan :
- Mandate doing it with your team. I led many of these sessions, and honestly no one wants to do this, ever. It is really not that bad! But what could be more boring and corporate-snooze-fest-like than “hey everyone, lets do a risk plan!”. Sorry.
- First things first, before you start thinking of risks, figure out what is “high impact” to you vs. “medium impact” vs “low impact”. Otherwise once you get going, everything will look high impact. Maybe high = customer upset and $X lost revenue. Whatever it is, take 10 minutes getting that agreed.
- Brainstorm with your team what could go wrong. One way to do this is draw out your supply — who gets parts from whom, what ships where, the entire process. Then just say “what could go wrong in this step?”, for each one. You are the experts, you will all know the fragile points in your supply. List all the risks first, then go back and assign the impact and probability.
- Now look at your highest risks, focus on those with both high impact and high probability. Ask yourselves 2 questions : 1) “Is there anything we can do now, to avoid this from happening completely?” and 2) “If we knew for a fact this was going to happen, is there anything we can do now that could lessen the blow?”. Sometimes the answers are no. But often, there are actions that you can put in place now.
That is it. Look at the actions, get people working on them and see what happens with the crisis. Best case, nothing more goes wrong and you are fully in the clear, great. But don’t just rely on that possibility.