Planning for a Supply Shock You Cannot Predict

The question that can be answered

Predicting the next disruption is not possible and not necessary.

The answerable question is narrower: if any single supplier stopped tomorrow, which ones would stop you working, and how long would replacing them take.

That has a concrete answer for every business, it can be worked out in an afternoon, and it does not require knowing anything about the future.

The exercise

1. List everything you buy that the work depends on.
2. Note who supplies each and whether there is an alternative.
3. Mark anything with a single source.
4. For each of those, estimate replacement time.
5. Rank by how badly it would stop you.
6. Deal with the top three.

Most small businesses doing this find between two and five genuinely single-source items, and are surprised by at least one of them.

The surprises are usually small and cheap items: a specific fixing, a particular adhesive, or a component that only one distributor stocks locally and that nobody in the business has thought about in years.

A worked example

A sign maker who assumed his exposure was vinyl, since that was his largest purchase.

Working through the list, vinyl had four suppliers within a day's delivery and was not a risk at all.

What was single-source was a specific laminating film matched to his machine, available from one distributor. Without it he could produce signs that would not last outdoors.

Second on the list was his printer's ink, tied to the machine, with one authorised supplier.

Neither was expensive and both would have stopped the business.

He now holds three months of both, which cost a modest sum and removed his two real exposures. The vinyl he continues to buy weekly, because he does not need to hold it.

The useful part was discovering that his instinct about what mattered was wrong.

What to do about a single source

Four options, in rough order of cost.

Find a second supplier, even a more expensive one, and place a small order so the account exists.

Hold more stock of the specific item, which costs money and space but nothing else.

Qualify an alternative product, so a substitution would work if needed.

Accept the risk, deliberately, having priced what a stoppage would cost.

The fourth is a legitimate answer. Not everything is worth mitigating, and a decision made knowingly is different from an exposure nobody noticed.

The account you open before you need it

The cheapest single measure available.

Opening a trade account takes days or weeks: references, credit checks, paperwork. Doing that during a shortage means competing with everybody else doing the same thing.

An account opened in advance, with one small order placed to make it real, means you can buy on the day you need to.

It costs almost nothing and it is the difference between a phone call and a fortnight.

The counter-case

Where this planning is not worth much.

Businesses whose inputs are entirely commodity, available everywhere, where substitution is trivial. A general cleaning business has little to plan for.

Very small operations where holding stock is not practical and a week of disruption is survivable.

And businesses where the real risk is demand rather than supply, in which case the same exercise applied to customers is more useful: which single customer would hurt most to lose.

The concentration question is the same in both directions, and most small businesses turn out to be more exposed on the customer side than the supplier side when they check.

Holding stock, and its cost

Worth being honest about, since it is the usual answer.

Stock is money that is not available for anything else, plus the space it occupies, plus the risk that it expires or becomes obsolete on the shelf.

Which is why holding more of everything is not the answer, and holding more of the two or three specific items that would actually stop you working is.

The calculation is straightforward: what would a week of not working cost, against the cost of holding a few weeks of the critical item. For most trades the answer is obvious once both numbers are written on the same piece of paper.

Telling customers before they ask

The communication half of resilience, and the one that costs nothing.

A business that knows a shortage is coming can tell customers early, which converts a future complaint into an early decision.

Somebody told in March that a particular item will be difficult in May can order now, choose an alternative, or plan around it. Told in May, they have no options at all.

That requires watching your own supply rather than only reacting to it, which is what the exercise above produces as a side effect.

The businesses that came through disruptions best were rarely the ones with the most stock. They were the ones whose customers were not surprised.

Concentration on the customer side

The exposure businesses notice least.

A business where one customer is forty percent of revenue is more fragile than one with a single-source supplier, and it usually feels like success rather than risk.

The same exercise applies: list customers by revenue, note what happens if the largest stops, and decide whether that is acceptable.

The mitigation is slower than finding a second supplier, because it means winning work you do not currently need. That is difficult to prioritise when busy, and painfully obvious in hindsight on the day that customer leaves.

Telling suppliers you have a second option

A side effect worth understanding.

A supplier who knows you have an alternative treats you differently from one who knows you do not. That is not adversarial; it is how allocation works when stock is short.

When a distributor is deciding who gets the last pallet, the customer who can go elsewhere is the one they are at risk of losing.

You do not need to threaten anything. Simply being a customer of two suppliers, visibly, changes your position without a word being said.

The reverse is also true. A supplier who is your only option, and knows it, has no particular reason to prioritise you when things are tight.

Writing it down

One page, revisited annually.

Critical items, who supplies them, who else could, what you hold, and what you would do first if a supplier stopped.

The value is partly the document and mostly the thinking behind it. Businesses that have done this once respond considerably faster when something happens, because the decision was made in a calm week rather than a bad one.

And it is the sort of thing that is genuinely useful to somebody else if you are unavailable for a fortnight, which is a separate and quite ordinary reason to have written it down.

Managing customer expectations while a shortage runs is covered in when your supplier cannot give you a date.

Frequently asked questions

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