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Assessing supply chain risk is imperative. Simply put, the operation needs to run smoothly, with no disruption from a revenue standpoint or to a company’s reputation and brand.  As much as its people and products, an organization’s suppliers and service providers are a cornerstone of its success and its ability to deliver value to its customers. 

 

Whether you sit in the C-Suite or are an investor, appropriate due diligence on business partnerships is well worth the time and effort.  As with any production chain, profits are maximized when all the parts are in order and everything is running on time.    

 

Some of you may recall the blip in the supply chain of KFC’s UK fast-food outlets last year: Supply chain failure closes more than half of KFC fast-food outlets. This precipitated the temporary shut-down of a majority of KFC’s outlets, and ultimately caused a 2% drop in same store sales. KFC’s 1st quarter of 2018 operating profit took a 5% hit.  While these financial impact figures may not jump off the page, it begs the question:  Did the switch from specialist food supplier, Bidvest Logistics, to a general provider in DHL in an attempt to save costs make sense?  It certainly was a roadblock as the picture below depicts.  Was DHL appropriately equipped for the task? 

 

 

 Roadblock

While due diligence and intelligence specialist firms are often engaged to evaluate an organization’s key management, one should not neglect to scrutinize business decisions such as the selection of primary suppliers. Knowledge of blemishes in a supplier’s track record, and commentary regarding their past performance and operational capacities from prior business partners, is material information.   

 Photo credit knowyourmeme.com 

Getting ahead of these changes is part of the risk management process, whether you're an operator or an investor in the business.  Anticipation of risk should be done proactively.  The brand split of Gap and Old Navy have been welcomed as a strategic move by investors, but with it, they will need assurance that the companies have established reliable supply chains:  As Old Navy and Gap split, so do their supply chains.   As with the KFC example above, even a small dislocation could impact the retailers' numbers.  This is especially true were a misstep to occur during a holiday season, and stockholders have proven to punish retailers even on slight misses on quarterly earnings. 

 

Gap has had an array of issues, and with Old Navy accounting for roughly half its sales, it'll have to hope that improved omni-channel capabilities and better product quality will translate to higher numbers.  Gap's "NewCo" will have some hurdles as it re-establishes itself.                                                                                                                                        Photo credit: RetailWireGapOldNavy

 

Gryphon Strategies employs an enhanced due diligence team that equips clients with important intelligence when it comes to business changes and decisions where a thorough vetting process may be warranted.                                                                                                                                                       

Please do get in touch with us and we’d be glad to serve you in safeguarding your investments, business, and its operations – rfinley@gryphon-strategies.com

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