6 Ways To De-Risk Your Reliance On An External Provider
Posted on 12 June 2014
It’s scary how often a business will have a supplier when there is a high level of risk of something going wrong, and have no contingency plan in place when something does. Not once, but twice I have had dealings with businesses who ran their critical business systems through an external provider that had the potential to go pear-shaped. In both instances, there was just one person who knew how to solve or fix things; if the system went down or broke the whole business would be in a critical position. Reliance on an external supplier is no small problem and something the stakeholders should sort out before it is too late. At best, your booze supplier may get lost, at worst your core business may be at risk!
So how do you de-risk your reliance of an external provider?
Well here’s a starting point:
1. Risk Assessment and Business Impact Analysis
First and foremost, when looking at taking on a new supplier you should perform a risk assessment and business impact analysis. By taking these steps, you will ensure that you are fully aware of all risks before signing an agreement. If this wasn’t done then it’s better late than never to do it; either yourself or bring in a consultant to do it for you. Once you have identified the risks and impacts put a plan in place for each of those scenarios – ideally you will work through these with the suppliers to ensure you have the best approach for each.
2. Ensure more than one individual is able to solve issues
Make sure more than one person in the suppliers business can deal/help with your business’s needs – if not, should you really be with them?
3. Identify who the supplier’s clients are and growth as a business
It is important to identify who the other clients are, as you will be able to assess how important your business is to them. If you are a key client, you know that you will sit higher on their priority list if something goes wrong. If the supplier’s business is booming and are taking on lots of new clients, you need to be aware that they could potentially create more demand than what they can supply – especially if they are a small business.
4. Protect yourself
Credit check your suppliers annually to ensure they are stable and won’t go bust!
5. Have a solid contract with set SLAs and guarantee
Identify the things that are of high risk to your business and ensure they fall into the SLA. For bonus points, have ramifications of not meeting the SLA’s.
6. Business interruption insurance
Consider insurance for business interruption that covers problems with a supplier.
The organisations that thrive and survive are those with plans for the worst-case scenario. So I challenge you to take a look at your business and assess whether you really are prepared. If you are prepared, please share your strategies for how you have tackled the issue of having a high reliance on an external provider. What have you done to de-risk your reliance?