Editorial · February 21, 2020
Supply Chain Risk: A Small Business Mapping Guide
Supply chain risk is the chance that a supplier problem stops your work. A late shipment, a closed factory or a bad part can all do it. This guide shows a small business how to map that risk in one afternoon, using a pen and a spreadsheet.
Why a small firm should care
Big companies have teams for this. Most small firms do not. Yet a small firm often has fewer suppliers, so one failure hurts more. If your only packaging vendor shuts down for two weeks, you cannot ship for two weeks.
The U.S. Small Business Administration has said that when a business is cut off from clients, vendors and critical staff, the losses continue long after the cleanup is done. It also noted that a continuity plan costs little compared with the losses of being caught off guard. The SBA named natural disasters, cyberattacks and random power outages as causes.
Step one: list your key suppliers
Open a blank sheet. List every vendor you pay. Then mark the ones you could not do without for a week. These are your key suppliers. Most small firms find fewer than ten.
For each key supplier, write down five things:
- What they give you, such as a part, a service or software.
- Where they are based, and where they make or ship the goods.
- How long it takes to get an order from them.
- How much stock of their goods you hold.
- Who your contact is, with a phone number that works after hours.
Do not stop at your direct vendors. Ask them where their own parts come from. You may learn that two suppliers you thought were separate rely on the same factory.
Step two: find the single points of failure
A single point of failure is one supplier, route or person that you cannot replace quickly. Look at your sheet and flag every item that fits one of these tests:
- Only one supplier gives you this item.
- The switch to another source would take more than a month.
- Your stock would run out in less than two weeks.
- Two suppliers share one location or one carrier.
Rank the flagged items by how much sales you would lose each week without them. The top three are where to start.
What the federal guidance teaches
The National Institute of Standards and Technology published Special Publication 800-161 on April 9, 2015. It is written for federal agencies and their technology buying, not for small shops. Still, its ideas carry over.
NIST says buyers face risk when they have less visibility into, understanding of, and control over how the products they buy are made and delivered. Its examples include counterfeit goods and parts built with poor manufacturing practices. The guide asks organizations to identify, assess and reduce these risks at every level. For a small firm, that means asking suppliers plain questions about where goods come from and how they are checked.
Step three: set backups before trouble starts
For each flagged item, pick one fix. You do not need all of them.
- Second source. Find and test an alternate supplier. Place a small order now so the account is open and the quality is known.
- Safety stock. Hold extra of the items that are slow or hard to replace.
- Written terms. Ask key suppliers how they will tell you about delays, and by when.
- Different routes. If two vendors ship from one place, ask whether either can ship from another.
Safety stock ties up cash, so use it only where the risk is highest. A cheap second source is often the better first step.
Step four: write it down and practice it
A plan in your head fails when you are busy. Put the map, the backups and the phone numbers on one or two pages. The SBA has urged owners to share the plan with staff and to review and practice it, so people know their roles. It has also pointed owners to the Insurance Institute for Business & Home Safety and its Open for Business-EZ tool for building a continuity plan.
Review the sheet every quarter. Suppliers change, and so do you. A map that is a year old can hide a new weak spot.
A quick checklist
- Key suppliers listed, with location and lead time.
- Single points of failure flagged and ranked.
- One backup chosen for each of the top three.
- Plan on paper, shared with staff, reviewed each quarter.
Sources
- U.S. Small Business Administration, news release MA16-48, September 8, 2016.
- U.S. Small Business Administration, “National Preparedness Month: Disasters Happen. Prepare Now. Learn How.”, September 10, 2018.
- NIST, announcement of Special Publication 800-161, April 9, 2015.