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Archive for April, 2014

Identifying and Mitigating Supply Chain Risk

Risk Management

One of the most important considerations for company leaders is the method by which they identify risks to their supply chain. Second to being able to identify risks is the formulation of a plan to mitigate those risks to prevent corporate disaster. The arena of supply chain risk spans the length of all of a company’s suppliers and extends to areas of the company that make up the total production and delivery apparatus. This means that disruptions in the supply chain, no matter where they occur, are potentially devastating.

Mitigating these risks can be achieved through diligent efforts to define the risks, planning to withstanding stoppages in the supply chain, and simplifying the supply chain structure. Through preparation and the assistance of analytical and forecasting tools, your company can emerge more prepared than ever to avoid the supply chain disruptions that can do serious damage to your ability to remain productive.

Defining Risks

Before a plan to mitigate supply chain disruptions can be created and implemented, the various areas of risk must be assessed. This assessment should entail all matters of evaluating the tentacles of the supply chain to reveal which assets pose the greatest risk of damaging the company’s fulfillment possibilities should catastrophe strike. A commonly flawed method for identifying those areas of greatest risk is done through assessing suppliers in terms of volume of business. Those suppliers with whom a company exchanges the highest value of products or services does not necessarily represent the most critical risk challenges.

In lieu of evaluating risk based on the value of the components delivered or services provided, a company should seek to find aspects of the supply chain whose functions reach furthest into the company’s product line. For example: A heavy machinery company might assume its source of greatest risk lies within the relationship with suppliers of its most expensive components, say, engine parts or hull frames. While heavy equipment is vital to the production of the machinery, other materials being suddenly unavailable might pose a greater risk to the company meeting its production goals. A small plastic panel that houses the transmission shifter may be produced by the same supplier that provides the tow cable fastener. These two seemingly and relatively less-important parts can make the difference between the heavy machinery company being able to produce its products as scheduled or being forced to delay production until another supplier is found or the problems experienced by the primary supplier are resolved.

In the above case, there are ways a company can go about mitigating that level and area of risk through diversification. Instead of having a single supplier or a supplier with a single production plant, the heavy machinery company can establish a supply partnership with several companies or companies with manufacturing plants in separate locations.

Planning to Withstand Stoppages in the Supply Chain

Once the assessment of the critical components of the supply chain that pose the greatest risks is completed, steps to mitigate the risks revealed should become the priority of the company. Ways in which a company can implement contingency planning varies and should include measures including the following:

  • Diversifying suppliers to avoid a natural disaster or labor conflict from snarling the overall supply feed.
  • Incorporating an emergency situation planning regimen and imploring those in the supply chain to follow suit.
  • Choosing to partner with suppliers that are located in regions of the world less likely to be the subject of political unrest that would threaten its ability to maintain production levels.
  • Enforcing redundancy within the company so as to not rely solely on one faction for important functions of production.
  •  Encouraging suppliers to manufacture from distinct plants to decrease the chance that a local event (natural disaster or otherwise) could cripple operation.

Simplifying the Supply Chain

One element of supply chain risk involves the complexity of the various partnerships. Those operations with the fewest moving parts are by definition less likely to experience unforeseen disruptions in the supply chain. While this is on the surface a truism, the need to diversify automatically creates a more complicated set of circumstances related to the number of entities involved in producing a product.

In order to simplify while simultaneously diversifying the links of a supply chain, the goal of the company should involve coordination of the requiring structure. Structure can be achieved or advanced through precise delegation and assistance through monitoring and forecasting tools and practices. Assigning oversight talent to monitor the variety of suppliers, with the aid of software tools, will enable the risks to supply chain disruption to be better monitored, forecast, and mitigated to lessen the blow to the company’s bottom line in case of an unfortunate turn of events.

Resources:

www.weforum.org/issues/supply-chain-risk

www.supplychain.mit.edu/events/Forum-PwC-Report

web.mit.edu/newsoffice/2013/hidden-risk-in-supply-chains-1216.html

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