Losing suppliers

There is a growing propensity for new cars to be sold without any spare wheel. There is no recent realisation that modern road surfaces provide no reason for tyres to be punctured. Equally, there is no reason to believe that some sort of contingency plan does not need to be in place.

On the contrary, there is only some redundancy in the run flat tyres that are fitted to these cars. One could therefore assume that the possible failure of the initial plan has been mitigated by a combination of good tyre engineering, better roads, mobile phone technology, availability of mobile mechanics, law enforcement and other idealistic plans.

This is all fine and well in the cities of Europe, where it is relatively safe to be a sissy, and where the motor manufacturers would never dream of pulling the wool over the eyes of their customers with any marketing nonsense. Except maybe VW.

For anyone to drive a small car in South Africa, anywhere except in the leafy green suburbs of the safer cities, with no spare wheel, would be crazy. Vehicle owners in the more robust environments all have a plan B, in a more sturdy vehicle, with an adequate spare, and the tools to replace it.

We have to look to a more reliable outcome where the backup plans are dodgy, and the risk of failure has such dire consequences. This is all about supplier redundancy, again.

The risk of supply failure is playing out in the VW supply chain to Swiss car retailers, where the VW diesel test fraud has caused authorities to ban the sale of the vehicles in that country. That means that a bunch of car retailers will suddenly find themselves without one of their favourite sellers on their shelves, almost without notice.

The ramifications are huge for the entire supply chain, all the way down to the suppliers of platinum (South Africa) where that metal is used in the catalytic converters to make the emissions (supposedly) palatable.

The lesson to be learned for business owners is that of supply chain redundancy. If your supplier is suddenly unable to keep product on your shelves, where do you go?

Key in the business valuation process, is testing a business for this sort weakness.

  1. Are there alternative suppliers?
  2. Does the business have a relationship with alternative suppliers?
  3. Is the business somehow embargoed from buying from the alternative suppliers?
  4. Does the business regularly buy from a cross section of alternative suppliers?
  5. Is the business able to shop around for the best price, and actively keep suppliers on their toes, price wise?
  6. Is the business able to regulate its gross margins through negotiations with alternative suppliers?

How does your business rate in those questions?

While you ponder that, consider putting off the purchase of your new mid range family saloon, as African countries look forward to a surge in supply of cheaper diesel powered VWs in the next year or so, as they are dumped out of the European market.

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