No one learns to ride a bike without a few fateful falls. Making mistakes is simply part of the learning process. You could probably teach yourself to ride a bike but it helps to have training wheels and a patient parent at your side.

Life is the same. We all make mistakes, learn and grow from them, but if we can learn from other people’s mistakes too, we may be able to avoid more than a few scraped knees. As Warren Buffet puts it, “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.”

In this series, we will investigate some real world examples of events or businesses that we can learn from to hopefully avoid those “falls” in our own business. The first in our series focuses on the current baby formula shortage in the United States.

I recently read about the terrible shortage of baby formula that the U.S. is experiencing at the moment. I can’t begin to imagine the impact this shortage is having on mothers, but it got me thinking, how did this happen?

It seems that COVID-related supply chain issues have now been compounded by the product recall and closure of a key supplier’s factory (approximately 25% of the nation’s baby formula). These two incidents have resulted in approximately 43% of baby formula being out of stock at retailers.

This tragic event got me thinking about dependencies. The U.S. nation was dependent on one supplier for 25% of its formula and, when unforeseen events occurred, they were thrown into shortages.

This is not an isolated incident.

In South Africa, people are dependent on one power supplier, Eskom, for electricity and when they have shortages, the public have “load shedding”, scheduled power cuts.

Being dependent on a few customers or suppliers for products or sales is dangerous but unfortunately more common than we would like to think.

Similarly to baby formula and electricity, when you depend too heavily on one supplier, your business could end up operating at their mercy, either when it comes to price hikes or to issues that affect them. These include:

The same thing could happen with a dependency on customers:

So, what can you do?

The first step to solving and guarding against a problem is to acknowledge it. So, to make sure your business doesn’t end up in a similar situation you can use tools like Syft’s customers, suppliers and product views to understand and monitor your customers, suppliers and product dependencies.

I took some time to do this for my example entity on Syft and quickly realized that I had some problems:

More than 50% of my products are purchased from one supplier, Captain Hook. This means that I would be in big trouble if something were to happen to their operations due to supply shortages and I could end up with supply shortages and angry customers of my own.

Customers are in a similarly precarious position with more than 50% of my sales being generated from one customer, Ariel. What happens if Ariel goes bankrupt, or finds a different cupcake supplier? What would I do then?

Finally, I am far too dependent on one product, Ariel cupcakes (which make up more than 60% of my products sold) to generate sales. Bad publicity, product defects, etc. could lose my business 60% of its revenue overnight!

Business changes constantly, so this is not a once-off exercise. Businesses should constantly monitor their dependencies. With Syft’s tools, you can check this monthly or even weekly or daily to get up-to-date, real-time data and quickly identify potential dependencies as they arise. With this information at your fingertips, you can act on these dependencies before it’s too late.

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Now that we have a system to identify and monitor these dependencies, what can we do to solve them? This will depend on your business and industry but here are a few suggestions:

The current baby formula shortage in the U.S. critically highlights the danger of an over-dependence on a handful of suppliers and by extension, specific customers and products. Though I in no way wish to minimize the tragedy of this shortage, it does provide us with the opportunity to learn from the U.S.’s dependence on certain formula suppliers so that our businesses needn’t experience similar problems.

With the right tool to identify and monitor any dependencies, your business can act quickly to avoid and address these dependencies before you suffer the consequences.

Jodilee Manuel is a CA(SA) with a passion for accounting, education, and travel. She has several years experience in auditing and teaching and has recently joined Syft as Head of Education and Training where she hopes to empower users to get the most out of Syft and find ways to use it to add value and grow their business. In her free time she likes to explore the world and has, to date, visited 50 countries.