Companies 'should have a supply chain plan B'

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Managing supply chain risk is essential for all firms

Businesses across the UK need to be prepared for a breakdown in their supply chain if they want to continue trading during times of crisis.

New research published by the Chartered Institute of Procurement and Supply (CIPS) has revealed how just 11 per cent of UK firms can say they have a "strong relationship" with their suppliers at every stage of the supply chain - highlighting the vast majority of companies that could be left in the lurch should there be a breakdown at any point in this chain.

Moreover, the report revealed how companies that have a full and thorough understanding of the supply chain are 1.5 times more likely to have avoided any major supply chain issues during the last year.

They are also four times more likely to be able to demonstrate full visibility in their supply chain - understanding from source to final delivery where all of their required products and services come from.

CIPS group chief executive officer David Noble commented: "Having visibility and strong supplier relationships at the first tier of the supply chain is clearly no longer enough, as these risks do not always exist in the first tier, but often further down supply chains.

"Best practice requires a thorough understanding by companies of who their suppliers are. Many procurement professionals will be confident they have this understanding, but this knowledge is incomplete.

"Professionals and buyers must have a licence to practise so business and governments can be confident of where responsibility and accountability lies in purchasing decisions."

Mr Noble added that UK firms are also increasingly turning to suppliers from the developing world, and while doing so is providing a welcome boost to their price competitiveness, it is important that businesses following this course are aware of potential downsides in terms of reputational risk over issues like "poor health and safety standards for workers or even enforced slavery, bribery and corruption".

The importance of in-depth research into all levels of the supply chain can therefore not be underestimated, especially as the CIPS research also showed that two-thirds (67 per cent) of supply chain managers with an understanding of their suppliers up to tier three stated their business had been able to avoid all potential disruptions in the last 12 months.

This compared to just 45 per cent of businesses that had an understanding up to just tier one of their supply chain.

Developing close working relationships with suppliers is also a positive move in terms of long-term business development, as firms that are able to develop long-standing relationships can often benefit from reductions in costs.

However, when it comes to managing risk, business leaders should always have in place a plan B for each of their suppliers, as they can never be sure when a link could be broken and an alternative will be required.