Today, to manage your risks and ensure your own resilience, it has become essential to evaluate the resilience of your commercial partners.
Beyond the already identified externalities, this is the overall supplier's solidity, that you should assess to be ready for the unpredictable.
Here are several key points to look at when you want to do so:
1/ Understand the past and the current situation
Does the factory have solid basis to grow on?
Understanding the commercial breakdown of your supplier and the markets it works with, is of upmost importance to ensure of its financial stability.
Does your supplier focus on one market only or has an equal distribution among several markets? The rule that prevails as always is not to put all your eggs in one basket.
We have a great example with the U.S. trade war that is pushing small factories highly dependent on U.S. market to bankruptcy.
Thus, a solid supplier will always try to develop new markets and adapt, way before situation turns bad.
In short, you should be aware of:
- the yearly turnover and progression.
- the market share distribution and progression.
- the new market developments.
2/ Understand the vision for the future
Does the factory have a strategy, a clear vision to sustain and grow?
Here, we are not talking only about a nice inspirational sentence such as “be the best supplier in the world”, although there is nothing wrong about it. We are referring to a real operational plan for the future.
Indeed, so many factories stuck in their daily routine, enable to react as their sales are plummeting. Even in good times, they would be unable to seize the new trends and opportunities to develop on the long-run, such as eco-conception or organization improvements.
The management of the factory you work with, should have a real understanding of the market. They should be able to expose to you what must be done to stay in the race and above all mobilizes resources to match its ambitions and ensure a long-lasting partnership.
In short, you should be aware of:
- the current and future challenges and how to mitigate them.
- the opportunities and how to seize them.
- the road map: resources engage and timelines for the changes.
3/ Evaluate the management qualification
Is the management able to set up its vision?
Because factory managers and founders can have all types of background, especially in China where we see former workers or real estate agents starting their own factory; it is essential to check the qualification of the leading team.
They should demonstrate strong operational skills, of course, to ensure quality and on time delivery. But they should also understand which other aspects are critical, notably for local authorities. They should be aware of the latest policies such as for health and safety and environment related matters, to remain proactive on those aspects and avoid being fined or shut-down.
In a nutshell you should ensure they put the right resources in the right place for frictionless operations.
In short, you should be aware of:
- the details of the organization to understand the key functions.
- the background and training of the management and key operational managers.
- the relations with the government and the latest changes in policies.
- the recent upgrades or the future upgrades in regards with environmental and social policies.
4/ Evaluate Human Resources management
Will the company culture and employees enable the deployment of this vision?
In many factories, especially industries such as metal and wood crafting, the workforce is aging. Young workers are adopting “mercenary attitude” where they work excessive hours in a short period of time to save money and open their own business.
Human resources management is thus a cornerstone to attract and retain the workers for the future.
As in any company, factories must set up actual Human resources policies with good welfare and real development and career perspectives. This will help to secure a stable workforce to sustain the operations in the future.
While going in the factories, you should take time to visit the workshops:
- to see if the working environment is healthy and safe.
- to feel the atmosphere among workers and the interactions with the management.
- to assess average age of the workers.
- to have some casual discussion with the workers and understand their bond with the factory and their situation.
5/ Check the integration
Does the factory future highly depend on external factors?
Finally, one point not overlook is the level of integration of the factory. Indeed, it is easy to understand that the more the factory relies on subcontractors to produce, the more difficult it is to manage the risks. If this is not your own supplier shutting down, it might be their partners, creating a disruption in the chain.
It has been the case during the governmental crackdown on environmental practices in China in 2017, where thousands of plating factories were stopped for non-compliance.
When choosing a supplier, it is important to identify the key processes and make sure they are operated at the rank 1 facility or that they have a tight relationship and strong influence on the rank 2.
You should be aware of:
- the presence of subcontractors (and/or check on site the process operated in the factory)
- the list of subcontractors to your supplier and visit them
- the relationship and dependencies between your supplier and his subcontractors
Evaluating the solidity of your suppliers proactively, is indubitably the best way to prevent and face crisis. To do so, it requires to set up an on-going and transparent dialogue to assess their ability to project themselves in the future and the adequacy between that vision and their current situation and capacities.