Supply chain risks are everywhere: A former employee has a bone to pick. A Midwestern tornado knocks out a factory. A recession causes customer demand to dip.
If you can dream up a risk, it can affect your company. How can you predict which actually will? You can’t, unfortunately. But you can take steps to protect yourself from the seven most common ones:
1. Suppliers going belly-up: Buying groups ensure backups.
Your vendors are in business now, but will they be in a year? Above all others, that question should drive your procurement strategy. If a vendor throws in the towel without warning, you could be left for weeks without the goods you need to operate. However low the chances of that happening are, the consequences for your company could be huge.
Whether through your own connections or a group purchasing organization, it’s critical to have second-line suppliers as fallbacks. Think not just about the product’s components, but also about your office’s operations. If your company’s cafeteria had to shut down suddenly, how much perishable food might go to waste?
2. Equipment breakdowns: Tech can tell you they’re coming.
If you’re in manufacturing, construction, shipping, or any number of other industries, you rely on machines to get the job done. And when they’re the foundation of your business, there’s no such thing as a good time for those machines to malfunction.
Anything with moving parts will eventually break. You can’t prevent that, but you can predict it. Take your cue from companies like EquipmentShare, which use sensors and telematics software to measure metrics like fluid levels, run time, and engine strain. EquipmentShare then alerts users when its construction vehicles are approaching maintenance benchmarks or about to break down. If everything is already in good shape, invest in service reminders like oil change indicators to keep it that way.
3. Workers jumping ship: Retention is cheaper than recruitment
Right now, the U.S. unemployment rate is the lowest it’s been in a half century. When workers know that employers are desperate to fill seats, they’re far more likely to make an abrupt exit. That might not interrupt business if it’s a worker here and there, but it doesn’t take many quits in a row to throw a wrench in the works.
Retaining team members is cheaper and less disruptive than recruiting new ones. Survey team members quarterly about their workplace likes and dislikes. Ask, in particular, what benefits they might like that they don’t currently receive. If you can provide financial counseling or exercise programs at just a few dollars per employee per month, why wouldn’t you? If they keep a single worker around, they’re worth it.
4. Cybercrime: Prevention starts with culture.
Corporate cyberattacks are increasing in number, resolution time, and cost. Accenture and the Ponemon Institute’s Ninth Annual Cost of Cybercrime Study showed that the average organizational cybercrime cost rose $1.4 million in the past year to an eye-popping $13 million. Over the same span, the average number of security breaches rose 11 percent.
Cybercrime might sound like a technology problem, but experts argue that the primary culprit is actually a human error. Through training, content, and leadership buy-in, build a culture of security to minimize breaches. Use white-hat phishing tests to determine workers’ readiness in case they receive a truly dangerous email. Be clear that no worker will be punished for bringing a breach to the leadership team’s attention, even if the team member made a mistake that enabled it.
5. Natural disasters: Insurance is key.
Wildfires in the U.S. are becoming more destructive and more common, as are tornadoes. Both flood and drought records are being broken around the world. Whether caused by climate change or coincidence, the reality is that business leaders have more reason to worry about natural disasters affecting their operations than ever before.
Aside from building a concrete bunker as an office, there are a couple of ways companies can protect themselves. Investing in not just property insurance, but also in business interruption coverage, can mitigate the financial damage. Minimize disruptions by developing a disaster plan — including processes for continued client service, employee communication, and document protection — with the team.
6. Dips in demand: Reinvestments pay off.
Nobody knows exactly when the next economic downturn will hit, but most economists predict it’ll be by the end of 2020. Although it might be tempting to sock money away, doubling down on R&D and marketing is the smarter approach.
What, exactly, should your spending priorities be? Start by giving your core product a checkup. When trouble starts, the source of your revenue needs to be as strong as possible. Next, consider expanding it into new markets and with new technologies. Broadening your customer base reduces your risk in case one sector or geographic area is hit particularly hard. Finally, give marketing a shot in the arm: Make sure you’re the industry leader when times get tough. And by boosting your budget now, you give yourself more room to pare it back later.
7. Geopolitical issues: Avoid uncertainty.
Between Brexit, domestic tensions, and international conflicts like Syria and Yemen, the world is in flux. On the heels of 16% rise in 2018, this year’s Cambridge Risk Index measured another 6% increase to the GDP of the world’s 279 most prominent cities. Increases in cyberattacks, price volatility, and financial crises fueled this year’s change.
If you do business internationally, avoid operating in war-torn and unstable regions. Never negotiate with insurgents or dictatorial regimes. What if all of your work is within U.S. borders? Don’t take a position on political issues, particularly social matters that people feel passionately about. Ask employees to limit their political speech online, and don’t make donations to political action committees.
There’s no way to know when or how Mother Nature, machines, the economy, or even upset employees might put your operations at risk. Don’t wait for a wake-up call. Sooner or later, your supply chain is bound to get one.