Assessing supply chain risk has always been an element of undertaking full network reviews. However, taking the Covid-19 pandemic as a catalyst, businesses might want the option of considering a more specific focus on supply chain risk on its own.
Whatever, the new normal looks like post-Covid-19, businesses will need to take steps to ensure they protect future business performance. This can be achieved by creating supply chain resilience and building internal capability to manage future supply chain shocks. The objective here should not be just to mitigate risk but to build a competitive advantage in reacting to it quickly and effectively.
The first step on this journey is to identify and mitigate your current supply chain risks and conduct a risk assessment.
Introduction to Supply Chain Risk Assessment
Supply chain risk is one of those business concepts that has been around for many years. It has developed some traction especially in automotive businesses that operate on lean logistics principles. By their very nature, these are more fragile to supply chain shocks. However, generally, it has not really been taken seriously enough by many businesses, until of course, a catastrophe occurs.
So, maybe with the Covid-19 pandemic supply chain impacts, it is a concept whose time has finally arrived for business more generally.
Supply chain risks can arise in a variety of different forms and risk identification can be categorised as:
- Network risks. Supplier failure (1st, 2nd, or 3rd tier), supply chain IT failure, strike in a logistics service provider, flood or fire at a DC, surge in demand that the existing infrastructure cannot handle.
- Organisational risks. Departmental failure (key individual illness), no relevant data to support decision-making, lack of cross-functional information sharing, no early warning mechanisms.
- Business environment risks. Macro-level effects such as a general recession, trade disputes, loss of part of a market to competition
Obviously, when a crisis hits all 3 of these risk areas simultaneously as in the case of Covid-19 the resulting impacts are massive. Even the best-laid risk assessment and contingency planning would not protect a business in this type of situation. However, it would likely mitigate some of the worst impacts. It will certainly help to get the business back up again as restrictions are eased.
The Foundations of Good Supply Chain Risk Assessment.
The 4 pillars of supply chain risk management that underpin best in class performance are shown below:-
So, the questions to ask of your business are:
- Does your supply chain provide complete visibility?
- Do you understand your supply chain risks and do you have business tools to assess them?
- Have you made systematic planned actions to mitigate the level of supply chain risk?
- Do you have contingency plans in place, to be used in the event of a major supply chain disruption? Have they been recently reviewed? Are they still fit for purpose?
Managing Risk. How we can help?
We in Bisham Consulting have developed an interactive approach to carrying out supply chain risk assessments for our clients. It is based on a 4-stage process:
Identifying risks, through end to end mapping of the supply chain. Auditing existing operations and finding process weaknesses, compliance risks and checking existing contingency plans, where they exist.
Assessing risks, by attributing risk indices to all elements of your supply chain, also considering multiple tiers of suppliers. This produces a Hot Spot analysis and identifies Single Point of Failures in your supply chain.
Risk mitigation plans based on segmentation of supply chain risks. Can they be avoided or reduced through supply chain re-design? Can the risks be limited or transferred e.g. insured or must they be retained in the business but with robust contingency plans put in place?
Finally, what are the capabilities our clients need to effectively monitor supply chain risk on an ongoing basis? For example, being able to identify new risks quickly, using business support tools to effectively manage future impacts and rapidly deploy cross-functional teams to implement the contingency plans that are now in place
What are the client benefits of a risk-assessed supply chain?
With a properly risk-assessed supply chain, you will obtain a fresh and independent check of the risk levels in your supply chain. Ensuring that hidden risks are revealed, known risks have been mitigated and that robust contingency plans have been put in place. We will also leave you with clear recommendations on how your organisation should be monitoring ongoing risks and reacting to them rapidly and effectively.
Going through the process will build better resilience into your business performance. It will also create a competitive advantage, as you are able to manage business disruption better than your competitors. Finally, you will also get the bonus of gaining some important additional insights into the mechanics of your supply chain.
Ultimately you may even get a better night’s sleep!