The pandemic struck at a time when supply chain risk management was in many ways in a worse state than it has ever been. Globalisation has created long-distance multi-tiered supply environments that are potentially very complicated and only partly visible. The pandemic has provided valuable learning and increased motivation to ensure that the supply chain is better prepared for the future. The key for surviving any future disruptions is to focus on supply chain risk and resilience management. Businesses should be planning and preparing in case of a future pandemic or other unexpected disruption, perhaps from Brexit or cyber-attacks.
These recent disruptions from the pandemic have been felt across the world and are far from over. This calls for companies to urgently rethink the way in which they navigate their supply chain management. Because of the ever-changing nature of supply chains, there will always be disruptions that will throw off the capabilities of supply chains. In a Survey by Gartner, only 21% of participants stated that they believe their network is resilient enough to mitigate the risks that lead to disruptions.
Although this does not seem like a high percentage, over 50% of the participants stated that they believe their network will become highly resilient within the next few years. This is a good sign but also poses the question: How can you make your supply chain resilient enough to cope with unexpected disruptions?
Supply Chain Risk Management.
The best way to mitigate risk is by having a highly visible and resilient supply chain. It is important to truly understand the demand patterns of not only your customers but their customers too. One valuable lesson learnt from Covid 19 has been that planning and processes need to be in place to enable fast response for when massive surges in demand occur or at the other end of the scale when there is no demand! Also concentrating purely on cost is not efficient unless the rest of the supply chain is resilient.
Restructuring and rebalancing your supply chain to achieve resilience will not be easy but will be worth it. Businesses need to start being proactive rather than reactive.
Internal and External Supply Chain Risks
Supply chain risk and vulnerability can be divided into external and internal ‘drivers’.
The external drivers are demand side, environmental and supply side risks and the internal drivers include processes, control and contingency planning.
These come from outside your organization. These risks can be harder to predict and prevent. It also requires more resources to effectively overcome the complexity of these disruptions. See examples below:
- Supply risks when materials that you need are not delivered within the required timeframe causing your business processes to be disrupted or delayed.
- Demand risks when a product or customer demand is miscalculated or due to a lack of visibility regarding the purchasing trends and unpredictable demand.
- Business risks when there are unexpected changes with other companies that you depend on for example when a supplier goes out of business.
- Environmental risks include governmental, environmental or socio-economic changes that affect the workflow of supply chains e.g. Covid-19, natural disasters, legislation etc.
These are the risks in your company that are within your control, can be identified and managed if not hopefully avoided.
- Process and Planning – control risks caused by inaccurate forecasting and production and management that has not been planned well.
- People – the companies that will be successful during the pandemic will be the ones that recognise the abilities of their employees and how the employees can be responsive to change
- Manufacturing risks because of the disruption of vital steps in workflow throwing operations off schedule.
- Mitigation and contingency risks when your business does not have a solid contingency plan in place
How to mitigate supply chain risks proactively
- Review your procurement strategies, Consider dual sourcing, multi sourcing, home sourcing and vertical integration opportunities. Closely assess your critical suppliers, what are their strengths and vulnerabilities? What strategies and policies do they have in place to navigate potential disruptions?
- Incorporate a Risk Management policy and process as a component of your Quality Management approach. This should include a clearly understood Risk Assessment process on all critical elements of your supply chain, and a Risk Control phase to enable intelligent decisions to be made on how to respond.
- Evaluate the performance of your third party logistics service providers. Consider the levels of service experienced, the visibility of your inventory and shipments, the quality of their communication, the reliability of their data and the relationship you experience.
- Ensure your business is flexible and can respond quickly to unexpected events and disruptions, don’t hesitate to put your plan B into action. Once a disruption is detected, team members should act quickly to follow recovery protocols.
- Keep people safe – harm, illness or injury to employees can cause panic and disruption within your supply chain. Ensure your employees follow safety regulations and react quickly during emergency situations and disruptions.
In the current times it is essential to rethink risk and model it using ‘what if scenarios’ and supply chain mapping. We must try to create highly agile, adaptable and flexible end-to-end supply chain operations. We cannot become immune to risk but we can adapt to it and become resilient so that the impact on the operations is minimised.