By Pedro Paulo, CEO, Gatewit
Sometimes, even when acting with the best of intentions, an organisation’s suppliers can present it with problems. Exposure to economic, environmental, and geopolitical factors, among others, can cause elements of an organisation’s supply chain to become toxic.
With globalised supply chains becoming increasingly common, it’s more important than ever for businesses to carry out a strategic and systematic evaluation of every member and process in their network to minimise the risks posed by toxic suppliers.
Without knowing the make-up of its supply chain, and its exposure to toxic factors, an organisation can be at risk of suffering damage to its brand, its reputation, or its bottom line. It’s possible that the actions of a toxic supplier or partner could lead to an organisation compromising its relationships with clients, stakeholders and other partners.
Understanding the supply chain
The first step in identifying any potential issues and threats of toxicity is for a company to ensure that it has good relationships and clear channels of communication with each of its suppliers. After all an organisation working in partnership with its suppliers will be in a significantly stronger position to carry out a full and thorough analysis of its network.
It is important for the organisation in question to recognise the key members of its supply chain; from raw materials through suppliers and wholesalers to retailers and end-customers. The location of these members within the supply chain should be established, as should the part played by the organisation itself.
The organisation should gather as much information as possible on each key member. Consideration should be given to attributes such as a particular supplier’s domain knowledge, customer demand, its functionality and technology, and its standards of implementation and maintenance.
Evaluation criteria then need to be defined that can be applied to each of these attributes, identifying any risks that they represent to the organisation in question or to the wider supply chain.
Depending on where the supplier is based, these risks could stem from anything ranging from the effects of unmanageable inflation or a fiscal crisis in a major economy, interstate conflict, large scale involuntary migration, or the breakdown of critical information infrastructure and networks. Perhaps less dramatic, but equally risky, are the effects that a change in laws or regulations could have on a company’s business practices.
Once identified, these risks can then be analysed and used to create a graph or heat map of potential disruption across the entire supply chain. Illustrating the highest levels of toxicity will allow businesses to see which suppliers represent the greatest potential threats and, therefore, where they should focus their efforts to manage and avoid risk.
This course of strategic evaluation is key to assessing the strengths and weaknesses within an organisation’s supply chain. Without it, a business could find itself exposed to avoidable risk – not only of breakdowns in individual components and processes, but also of systemic breakdown, affecting the entire system.
Gathering and analysing information on suppliers is critical in avoiding the effects of toxic partnerships and toxic suppliers. Essentially, identifying the toxicity within its supply chain can significantly minimise the risk of damage to a business.