Supply Excellence has an interesting (and troubling) post highlighting statistics that indicates that the number of Chapter 7 (shutdowns) and Chapter 11 (restructuring) bankruptcies are both up considerably.  According to the American Bankruptcy Institute (ABI) there was a 42% increase in the number of bankruptcies in the first ½ of 2008.

It’s obvious now to most people that the world is in the midst of a significant recession.  As such, it is certain that more companies will be declaring bankruptcy in the next several months.

So what does this mean for you  and your supply chain?   In addition to examining your own business to ensure you can weather the storm, you need to look at your supply base to ensure that they are on solid financial footings as well.    Doing this, involves some analysis of your supply chain;

· Identify “single source” components.  Those components that have only one supplier identified.

· Determine the “contribution  to revenue” each of those components have.  A contribution to revenue metric pegs the component part to an end item, looks at demand for that item over time and “dollarizes” it.  The question being answered here is – if this supplier could no longer supply this part, what would be my revenue impact?  An item with a low contribution to revenue is a lower impact where an item with a high contribution to revenue would be considered high impact.  Suppliers of these “high impact” parts are automatically considered high impact when doing your assessment

· Now look at your supply base.  For each supplier, look at the components they produce and peg them to the shippable part to determine their contribution to revenue.  Suppliers contributing most to revenue are considered high impact.  A supplier may supply many items, each considered to be low impact to revenue, but when taken together provide a significant impact.

For the high impact suppliers, start to look at the financial stability of each.    Those high impact suppliers that are also high risk are those suppliers that you need to either work with to stabilize and / or develop alternative sources of supply so that if these suppliers fail, your business doesn’t fail with them.

So…what’s your strategy to mitigate this supply chain risk?

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Tags: Supply chain risk management
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