Supply chain risk is the current catchphrase for problems, glitches, or events that interrupt the continuity of supply throughout the global supply chain. While we quantify supply chain risk in high level concepts such as economic trends, geopolitical issues, and natural disasters, risk can be much more mundane, especially when encountered by early stage companies.
There is a current fascination in early stage companies. Tune into any episode of Shark Tank to see a variety of companies struggling through the trials of being in the early stage. Microventures, a venture capital focused site, looks at early stage companies as those that are trying to obtain financing for product development, adding staff, and chasing customers. It is these companies that encounter the greatest supply chain risk, often in day-to-day operations.
Early stage companies need to pay attention to the following threats in the short term to avoid supply chain issues in the long term.
- Search engine strategic sourcing. Search engine optimization is not a replacement for due diligence when it comes to selecting essential tier one suppliers. It is important to find credible, established, and viable sources of supply that can support early stage companies in product development projects. This can also help a company to scale when their business succeeds. Strength of critical suppliers is the foundation of an effective supply chain management strategy.
- Predatory suppliers. Treat cold call suppliers like you would window replacement sales people coming to your home at dinnertime. All suppliers are looking for the next big thing and troll the early stage incubators and maker spaces for easy marks. While supplier relationships are critical to business success, be careful of the sweet-talking suppliers who just so happen to be in the neighborhood and stumbled on your new and interesting business. The supplier selection process is driven by knowledge, not happenstance.
- Insufficient credit lines. For many early stage companies, MasterCard and Visa are the two members of the accounts payable department. While accessing personal and business credit lines may be fine for office supplies and the local hardware store, your bank and financers will want to see more substantial financial relationships with key suppliers. Be careful of inadequate credit lines when the business scales and be sure to pay your bills. “Credit Hold” is a supply chain risk. “COD” is worse.
- Free samples that aren’t free. Distinguish between free samples and gifts. Often companies will ‘comp’ some low value parts that do not meet an order minimum. This is a good sales opportunity and allows for the building of goodwill and customer relations. Suppliers may also provide samples for use in prototypes. Be careful here. They may be discontinued parts that are impossible to find again or new parts that may cause havoc with your cost modeling or delivery schedules. Prototypes made up of free samples are risky. Pay attention early to that bill of materials.
- Lack of confidentiality and protection of IP. Be paranoid around confidentiality and the protection of intellectual property. Require all suppliers to sign a non-disclosure agreement that extends to their key suppliers as well. If there are critical sub tier suppliers have them sign one as well. Confidentially clauses need to be part of your prints and specification as well.
What biggest challenges did you find when founding a fledgling supply chain organization? Let us know in the comments section below.