Are you dependant on one supplier? It’s time to evaluate the risk
As you build a company and begin to scale, it is important that you build strong working relationships with all your suppliers. This naturally leads to a situation whereby your growth and their growth are intertwined and your supplier will benefit from your success. However, it is all too easy to get caught up in the mindset of restricting yourself to just one supplier and failing to prepare for all eventualities.
What happens if your supplier can no longer supply?
It is not healthy to have an overdependence on just one supplier, as it can lead to major problems if, all of a sudden, they can no longer supply you. For example, that supplier could suddenly run into some sort of financial difficulty, and, unbeknownst to you, be unable to continue trading. Alternatively, your business could grow larger than their capacity allows, and they cannot fulfil your growing orders. Turning away willing and paying customers is not a situation you want to find yourself in.
What are the alternatives?
It is not at all fair to say that, just because you have one supplier, you are running a risky business. It all depends on your industry and how your manufacturing process is set up, after all, all businesses are different. However, there are ways you can prepare your business for the possibility of your solo-supplier letting you down. This includes;
- Start working with multiple suppliers. Rather than waiting for things to go wrong, you could start sourcing alternative suppliers and buying small amounts from them. This strategy of testing the water enables you to see which suppliers are up to the same standard as your existing one.
- Stockpile resources. If you are worried that you are growing quickly and your supplier may not be able to rapidly respond to your growing needs, you could start stockpiling goods now. This can be risky however as it entails you increasing your capital outlay, and potentially not being able to sell as much as you thought.
- Expanding your manufacturing capabilities. If you believe that one supplier is so integral to your company’s success, then you could even go so far as considering extending your manufacturing capabilities. This vertical expansion strategy could even see you acquiring your supplier to safeguard the company’s success and even improve profit margins. This is a much more aggressive stance, but an equally viable opportunity for your company.
There is no go-to answer as to whether having one supplier is a smart business move. It really depends on your business and its market. Just be sure to consider all potential risks that face your business, especially if you are starting to grow. It is smart to be aware of all eventualities and plan as best as possible.