Safeguard your continuity of business and strengthen your operational performance.
“Companies with mature capabilities in supply chain and risk management do better along all surveyed dimensions of operational and financial performance than immature companies”- PwC, supply chain and risk management.
The consequences of supply chain interruptions can have a significant impact on your operational and financial performance and is a threat to the livelihood of your organisation.
Well developed supply chain and risk management processes increase your resiliency, flexibility, and adaptability and allow you to respond to complex and dynamic environments.
A structured, systematic risk management approach limits the blowback of disruptions, improves your organisation’s resiliency and secures your continuity of business while providing you with the framework to increase market share, strengthen your operating power and gain competitive advantages.
Not every organisation has the resources to implement a full risk management plan, but there is something every organisation can do to set your starting point, mitigate what you can, and set a course of action for improvements.
Build the culture
Risks lurk around every corner, and although some risks may seem small in comparison to others, all are worthy of proactivity, as ultimately, they have the ability to impede your service levels and profitability. Building a culture of risk awareness should be driven from the top down. CEOs should be on the lookout for threats on a daily basis and drive their people to do the same, at every level of business.
Identifying threats is but the first step, empowering your people to identify threats as early on as possible and take mitigating actions without the need for lengthy analysis builds resiliency and lessens the impacts of supply chain interruptions.
Build your team
Supply chain risk management is not just a procurement effort. Getting stakeholder buy-in and cooperation is imperative. Collaborating with stakeholders, customers, suppliers, logistics partners, and IT or data management centres in your risk management planning can improve your outcomes and provide an opportunity to nurture relationships. Transparency in your goals, what will be required of, and how it will benefit those involved can help to ensure full and active participation.
Suppliers may have concerns with proprietary information, or the resources necessary for the tasks, so make sure to involve higher-ups to get the support needed. Your suppliers gain the same increased visibility and opportunities for risk mitigation, so ensure to communicate this and urge them to implement their disaster recovery and risk management plans.
Remember to market your efforts, most especially in times of great uncertainty, involving your customers allows you to calm their concerns and foster their confidence.
Increase visibility
Improving visibility and mitigating risk in a multi-tier global supply chain that may consist of hundreds or thousands of suppliers can be an arduous or even improbable task. The complexity of products, supplier proprietary information, and the difficulty in assessing the likelihood of risks such as weather patterns or cybersecurity are challenges that impede progress and limit outcomes.
A fully transparent and zero-risk supply chain is not likely achievable. However, even ‘black swan’ events (an unforeseeable event with catastrophic impacts that seemed predictable after the fact) may be mitigated with robust risk management practices. There is much that can be done to address, quantify and mitigate your supply chain risks.
From Business Continuity Institute (BCI) Supply Chain Resiliency Report 2019, more than half of the respondents in the study indicated that the disruptions of the past year had come from suppliers below the top tier.
Organisations are seemingly getting better at managing direct suppliers but finding it increasingly difficult to tackle tier 2 and tier 3 risks. While incidents with immediate suppliers fell below 50% for the first time since 2016, those in tier 2 rose to 24.9% from 23.2% last year, and those occurring in tier 3 and beyond rose to 12.2% from 11.0% in 2018.
Gaining deep visibility by mapping your tier-1, tier-2, and even tier-3 supply chain helps you to understand your interdependencies, find your blind spots and is vital to protecting your reputation, minimizing your likelihood of problems and ensuring continuity of business.
Your strategy and action plan will depend on your level of organisational maturity, available resources, as well as stakeholder support. Whether you gather a group around a whiteboard to layout your starting points or higher a third party to map your supply chain, your tactics should be designed to suit your business objectives, resources and budget.
If nothing else, establish your starting point. What do you know as of today? But perhaps even more importantly, what don’t you know?
Identify and quantify your risk
Your value drivers and risk principles should help guide your risk management efforts and should be communicated to gain alignment from management through to operations and supply chain partners. Evaluating every risk scenario is not likely, estimating financial and brand implications and prioritising your actions based on probability and impacts.
Know what you are willing to trade in order to mitigate risk. Price, lead time, quality, change in design? Know where your limits are and where you can be flexible.
Raw material price and currency fluctuations, environmental catastrophes, increased labour costs, political instability and business partner bankruptcy are but a few sources of supply chain risks. Identify your sources of supply chain risk, ensuring a thorough review of all potential twelve areas of risk and determine your risk exposure with a probabilistic analysis.
Here are a few questions you should be looking to answer.
Are you single sourced on important components, and if so, what risks do they bring and how vulnerable are you?
● Have you been focused on cost reduction and has this caused soft points? For example, low inventory levels not allowing for reaction time in case of disruption.
● What don’t we know that we should know, and how can we find out?
● What risks are we likely to be facing, and which are the most insidious?
Prepare a risk management plan
Employees should know how to deal with a crisis when they occur. Safeguard your continuity of business by establishing a continuous ready or risk management plan with predetermined courses of action and delegated parties set at your most vulnerable points.
Examples of risk-mitigating strategies to consider are:
● Implement a dual, triple sourcing strategy for all critical components
● Wherever possible, source one domestic source for each component
● Wherever possible, support all global sourcing strategies with a domestic option
● In times of high uncertainties, hedging your bets by applying a forward buying strategy
● Increase inventory levels and safety stock on high-risk items with low potential for obsolescence
● Source, test and approve substitute component options
● Enact a delayed differentiation strategy
● Push vendors to hold inventory at times of uncertainty (for example, hurricane season)
● Ask customers to collaborate with you on managing demand
● Increase your flexibility and mitigate transportation risks with varied material handling abilities
Read also: The case for supply chain management in Nigerian curriculum
Implement governance
Risk management isn’t a one-time affair, much like process improvements, it should be a mindset rather than a task and should consist of both formal periodic reviews and awareness. Events such as shifts in the political climate, forecasted extreme weather conditions or changes in your supply chain should rally your troops to review your risk scenarios and set your game plan.
Once the aftershocks of a significant event have settled, post-mortems should be scheduled to survey the aftermath and review the outcomes of your actions and pinpoint areas for improvement.
Supply chain disruptions have severe repercussions and deleterious effects to your bottom line, causing a loss of productivity, increased costs, impaired service levels, increased customer complaints and a loss of revenue.
Whether you leverage today’s technologies such as big data analytics and artificial intelligence (AI) for a real-time actionable view of your entire supply chain or kick off your risk mitigation efforts by noting and evaluating your blind spots on a notepad, risk management is no longer an option.
Preparation is paramount to improving your operational performance and safeguarding your future.
