Should SMEs maintain a fall-back list of suppliers?

who are your business suppliersThe recent problems that beset KFC when it switched suppliers raises the question of how vulnerable SMEs are when a supplier fails to deliver on time.
This is not only an issue for those businesses within the food industry that may be dependent on timely delivery of fresh ingredients.
Many businesses don’t hold stock or raw materials and depend on prompt deliveries as part of their production processes. Equally, it can be crucial when something, such as an IT failure, occurs unexpectedly that they can call on IT support promptly to fix the problem.
One of the ways in which businesses can avoid having too much capital tied up is to operate a “just in time” or “lean production” model for supplies or raw materials, components and other stock. This can also save premises costs by needing less space and save on the staff and management costs of having to administer stock.
However, this can make them vulnerable if a delivery fails to arrive on time, perhaps making it impossible to fulfil a client’s order to an agreed deadline. A smaller business is likely to be more vulnerable in a situation like this, not least to the reputational damage it might incur of being unreliable, and therefore to a loss of future orders.
The same situation could apply where IT support is outsourced but the supplier is unable to respond to a call for help quickly enough so that the affected business risks losing several hours – or days – of working time.
Another area where SMEs are likely to be vulnerable is where an existing supplier decides to increase their prices. Again, SMEs may not have the reserves to be able to meet the new charges and in fact may have quoted a sales price based on the current cost of materials or components where manufacture or delivery to the customer involves a a long lead time.
In the KFC case, it emerged that where previously it was being supplied from several depots located around the country, its new deliveries would be coming from one central depot to outlets across the whole country.
This, too, can make a business particularly vulnerable.
It makes sense for SMEs to have a contingency plan that includes alternative sources for any supplies on which its ability to fulfil orders may depend.
It also puts the business in a stronger bargaining position when it comes to negotiating the price of supplies.
Keeping an up to date list of alternatives, not only for price comparison but also for availability of stock and reliability of deliveries makes economic sense particularly for a small business.

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