When acquiring other businesses, it’s easy to overlook vulnerabilities within their supply chain. However, if your growth strategy depends on acquisitions, the strength of the supply chains you acquire is as critical to your success as the overall health of the company you are acquiring. Here are a few ways to protect your interests when your growth strategy involves acquisitions that depend on material supply chains.
Investigate Beyond Tier 1 Suppliers
Tech giant Apple has been ridiculed by the press, labor rights groups, environmental groups, and human rights activists several times due to vulnerabilities within their supply chain. Recently, an internal investigation revealed serious human rights violations involving Apple’s lower-tier suppliers in China. Other reports indicate that Apple may not be able to meet market demand for their new smartphone release due to supply chain vulnerabilities.
If a large entity like Apple can’t identify and address supply chain issues before they hit the news, imagine how vulnerable smaller companies are. Make sure you know who the tier 2 and 3 suppliers of your acquisitions are, where they are located, the working conditions in those factories, and the logistical conditions associated with getting critical parts and equipment to production.
Appoint Someone to Stay on Top of Suppliers’ Business Climates
Many of the countries where tier 2 and 3 suppliers operate are in political turmoil, some are in areas vulnerable to natural disasters, and almost any supplier can get hit with fire or other unforeseen problems. This is especially true if the supplier operates in a country with sub-par building codes.
Once you’ve mapped out the supply chains of your acquisitions, have someone internal monitor the news in any parts of the world where lower-tier suppliers operate. This allows you to get ahead of delivery problems that might derail your supplies and find an alternative solution before you are unable to meet production goals.
Develop a Code of Conduct for Foreign Suppliers
In addition to Apple, Wal-Mart and several U.K. retailers have faced public outrage when reports of dangerous and inhumane working conditions in third world countries came to light. The public doesn’t see the difficulties associated with monitoring a complex supply chain — they merely blame the corporate giant who contracted the work.
The smart way to operate in today’s complex global climate is to develop a code of conduct for all suppliers working outside the protection of solid governmental safety codes, and conduct regular inspections of all suppliers. This is especially important to do for a newly acquired supply chain.
Your vigilance before making an acquisition involving a supply chain pays off when operations run smoothly without the hassle, expensive downtime, and media scrutiny caused by an inappropriately managed supply chain you took over from another company.
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