Of eggs and baskets

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The global recession has impacted most businesses in one way or another and in many respects, once the dust settles, it is unlikely to be business as usual.

The vulnerability of supply chains to external sources of risk is now far higher than ever before. Globalisation and the stretching of lines of supply to distant low-cost areas of manufacture has placed a greater reliance on fewer suppliers operating far from the point of consumption.

In recent years the trend has been to reduce the number of suppliers to gain greater economies of scale. The received wisdom has been to forge close working relationships, or partnerships, with these key suppliers and, indeed, consultants have advocated that this is the best way to mitigate risk. But is it?

Perhaps it’s true that by working closely with a supplier you gain a greater understanding of both their strengths and weaknesses, however, under such volatile market conditions is it not more prudent to dissipate the risk of supplier failure by adopting a multi-sourcing policy?

Of course, this is not always possible, or even desirable in many instances, and making changes of this significance to the structure of the supply chain takes time. But broad-based policy regarding the combination of distant sourcing and concentrating points of supply must surely change if anything is to be learnt from this most damaging of recessions.

During the good times such risks seem minimal and worth taking. In more turbulent market conditions, where the financial failure of a supplier can have a critical impact on your business, the dangers of a fragile supply chain are thrown into stark relief.

If companies are to develop more resilient chains, capable of dealing with the vagaries of a new business environment, they are going to have to be geared to understanding the risks involved and have the vision and agility to adapt accordingly.

Perhaps there’s something to be said about eggs and baskets here?

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