What If My Supply Chain Partner Goes Bankrupt?

When Hanjin Shipping Declared Bankruptcy, Were Your Parts on Their Vessels?

Supply Chain Partner
Supply Chain Partner. Getty Images

When South Korea's biggest shipping line, Hanjin Shipping, declared bankruptcy many of its nearly 100 ocean freighters — carrying millions of dollars worth of other company's cargo — were stuck in limbo. The fact that Hanjin Shipping filed for bankruptcy protection at the end of summer meant that supply chain pro's around the world were suddenly concerned for the holidays

Are you prepared if one of your supply chain partners goes bankrupt?

Risk Mitigation

Risk mitigation suddenly jumped to the front burner of every company that has a third party partner in their supply chain — which is just about every company on the planet with a supply chain.

How many third parties have control of your goods from inception until you deliver those goods to your customers? There are your Tier II suppliers, your suppliers, freight forwarders (possibly on both sides of an ocean), customs brokers, third-party warehouses and even freight companies that deliver your goods to your customers. Is your supply chain robust enough to survive if one of them went out of business while holding your goods?

Safety Stocks

Eventually, Hanjin Shipping would be able to release its goods to its customers — but how long did Hanjin Shipping's customers have to wait? In many cases, they waited days to weeks.

Can you afford to receive your goods weeks after you expected their delivery?

If so, you just might have too much inventory throughout your supply chain.  

So how do you balance the need to receive goods on time with the risk mitigation necessity of carrying safety stock? You might say that Hanjin Shipping's bankruptcy is a once-in-a-lifetime anomaly and that you're not going to spend extra money on inventory to protect against it.

 

Or you could say that Hanjin Shipping's bankruptcy is exactly the kind of emergency that safety stocks are put into place to protect against. Other occurrences would include natural disasters, quality issues, demand surges, and the hundreds upon hundreds of snafus that can happen to supply chains.

Ultimately, it's your call whether you hold safety stock and how much it will be. Along with the safety stock decision, other risk mitigation factors need to be considered.

Supplier Audits

When was the last time you checked the financials of your supply chain factors? If you're like many supply chains, you might have checked the bank references when you first starting working with your supply chain partners — but not since. 

This might be a good time to reach out and tell your partners that you're updating your files and you need current bank references and DUNS numbers. 

Initiating a sourcing project is also an excellent time to refresh examine the financial health of your supply chain partners. You might think that you already have suppliers, so why would you need to start a sourcing project? Even without the urgency to reexamine the financial health of your suppliers, re-sourcing existing products every three to five years ensures your supply chain remains optimized — as it helps drive savings, invigorate innovation and consolidate spend.

 

Sourcing Projects

Remember to initiate sourcing projects for freight forwarding, warehousing and logistics carriers — not just inventory suppliers. 

In the case of Hanjin Shipping, many of its ships floated helplessly just outside their intended ports of call. With creditors concerned that Hanjin Shipping would be unable to pay its bills, that very, very valuable cargo floated inside of or on the decks of those ships.

An optimized supply chain is one that allows you to your supply your customers what they want, when they want it — and spend as little money as possible accomplishing that. It's nearly impossible to achieve an optimized supply chain when your products are sitting on an ocean freighter with its engines turned off.