Dangerous Interdependencies

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In any business there are certain dependencies which may become, over time, a threat to the survival of the organization. A simple example is in the case of any source which has become your sole supplier for any product or service. Of course, the extent of the threat will vary in direct proportion to the significance of the role played by that sole supplier — your “default source.”

Several areas of exposure are cursorily described below:

1) Your supplier increases prices to your company for one or more reasons — perhaps he is feeling particularly powerful; perhaps his cost of producing the goods or rendering the service has increased, and he is passing this increase along to you; perhaps he has lost another one of his most important customers and is trying to cover the revenue loss by overcharging you – at worst, he may be trying to weaken your company to the point that you become an easier, more pliable takeover target;

2) Your supplier simply cannot produce timely enough in or in sufficient quantity to service your needs — this may endanger your company and can cause problems with some of your most important customers… what if your supplier’s business is failing? There is the chance that he can bring your company down with his;

3) Your supplier’s quality of production or of service is deteriorating, slowly, but surely.

If you have a dangerous interdependency, your fate may rest with that of your favorite supplier. And your supplier’s fate is not necessarily subject to your control or your needs. There are too many exogenous factors at play.

Having lived through this scenario on numerous client engagements, I would gently suggest to you that you always have several alternative sources of supply, and that you keep them “warm” by ordering from them on a ’round robin’ or some other equitably and sensibly excusable (plausible) basis. The only good exclusive source of supply is the one that you happen to own; and tha, by itself, if still no guarantee.

In words which bring to mind the late Johnny Cochran, attorney cum minimalist poet, “Diversify your source of supply.” Amen.

Douglas E. Castle

 

 


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This site is the Management Consultants' and Chief Reconstruction Officers' best all-industry guide to analyzing, diagnosing, devising a strategy, creating either an Action Plan or an Emergence Plan and overseeing and monitoring the successful implementation of either in order to ensure the client organization's optimal, sustainable profitability. These plans are always made scalable to accommodate the size and needs of the client, whether it is fast-growing young company with an aggressive and ambitious agenda, or whether it is an older, larger, well-established business which is experiencing problems or which is at a crucial decision making point in its evolution as an entity, and which requires sound advice (and often implementation oversight and assertive "hands-on" assistance in the form of a powerful third-party representative agent or a an expert in the art of negotiation as its appointed "point person") regarding its next steps. In the alternative, Douglas E. Castle is expert at helping fast-track, rapidly emerging companies to growth through acquisitions, mergers, licensing, branding and both domestic and international strategic joint ventures to access better, more efficient supply chain sourcing and to open up wider global markets to dramatically increase the scope of possible new revenue opportunities.


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