This week Charlie looks at the importance of identifying succession within your supply chain.
I have spent a day working with a manufacturing client this week to provide some supply chain continuity management training. The majority of their products are built or partially built in China and then shipped to the UK for final assembly. During the training we came across a new risk to suppliers that I had not come across in my reading, or heard of before, so I thought I would share it with you.
As part of the days’ training we were looking at the potential risks to their Chinese suppliers. Alongside the normal risks such as natural disaster, loss of utilities, fire and flood, there was the risk of continuity of the business. Many of the businesses had been started by a single person and had been built up and progressed well over a couple of decades.
The owner of the businesses is elderly and my client was looking at what would happen after they retired or died. As the businesses are personally owned, they are very hierarchical with the boss making all of the decisions. The next generation of manager has not been developed as they do not have the experience and have not been provided with adequate training to run the business themselves.
The owner’s children, of which there is more than likely only one, are not interested in running the business but much happier to live off the lifestyle the business has given them. Unlike western families, where there could be several children, and in the event of the eldest child not wanting to take over the reins, there may be 2-3 other children who may be interested in taking over the business. As it has been the norm within Chinese families to only have one child, if that child did not want to run the business there was nobody else.
There was the danger that once the owner died the business would fail and close down, which was a foreseeable risk, but something my client could do very little about.
So in assessing your supply chain risks, look at the ownership of a company and see if you can identify how succession will work if it is a private company. Is it just possible that the owner may die and the company soon after closes down?