Risk management is an initiative getting significant focus from procurement teams right now. At the heart of this is the development of resilience strategies to safeguard supply chains and ensure business continuity when challenges arise.
Those challenges could relate to coronavirus, natural disasters, a raw materials shortage or disruptive events such as port closures or wait times. Whatever challenges your business faces, building supply chain resilience will give you a competitive advantage in your field and make decision making more straightforward when you hit trouble.
It's a critical part of your broader supply chain management strategy.
How well your business - and supply chain operations - can predict, weather, and recover from unexpected, disruptive events like the COVID-19 crisis, is how resilient your supply chain is to these risks.
For example, a business that saw its global supply chains collapse and profitability plummet during the pandemic would be said to have had low supply chain resilience.
While the concept itself is simple, various factors play a role in supply chain resilience, from the quality of your supplier relationships to how reliant you are on a single source for providing specific items.
Supply chain resilience can look different to everyone depending on the industry in which your business operates and the stakeholders involved in your business operations. For example, a company that holds masses of stock may have a different interpretation of resilience than one reliant on getting physical products on a shelf "just in time."
Since early 2020, nearly every business will have experienced supply chain pressure in some manner. The impact of the pandemic on the global economy and end to end supply chains was such that even businesses considered supply chain leaders with high resilience and a robust supply chain strategy took a hit.
This guide will help you develop your supply chain risk management strategy and build resilience in whatever industry your business operates in.
Where are the most significant vulnerabilities in your supply chain? Understanding this is vital, as taking care of the "quick wins" first can significantly impact your business operations and entire value chain.
You must recognise that vulnerabilities can exist anywhere in your supply chain. Potential vulnerabilities might include:
Conduct a risk assessment and understand the most significant vulnerabilities in your supply chain. Unless you sell a product that uses components only available from one supplier, then you should be able to put things in place to build resilience and mitigate supply chain risk.
When assessing redundancies, what you're really doing is understanding how much redundancy you're able to tolerate. Supply chains always need some redundancy, so you have the scope to increase production if needed, but not so much that it affects productivity and profitability. Find the sweet spot for your business.
Your supply chain resilience will only ever be as good as your supplier relationships. If there is a lack of connectivity between you and your suppliers, you leave an unacceptable chunk of your supply chain open to significant risk.
Your suppliers must be clear and agree to work to your expectations, whether that's around lead times for products or maintaining a sustainable supply chain.
Agree on how you will measure performance against these expectations, and commit to working with your suppliers to help them improve.
Such is the widespread availability of products these days that unless you have exclusivity on something, a stockout can often be the last time a customer considers buying from you.
Having a buffer of safety stock is the easiest way to build a more resilient supply chain. It means you can continue to serve customers while dealing with issues in the background. While it can be difficult to justify having stock buffers due to how much cash flow it can tie-up, it's worth doing if your business can afford it.
If this approach isn't sustainable on an ongoing basis, use it for new product launches or around seasonal sales periods. Businesses are often criticised for not having enough products and then trying to justify it by saying, "we didn't anticipate the demand."
Don't let your business be one of them.
If your business was distributing from a single site during the COVID-19 crisis, and it had to close due to lockdown restrictions or staff illness, you know all too well about this problem.
Having all your inventory in one place is fine when everything is working as it should. However, we're now acutely aware of the impact pandemics can have. We can also see that climate change likely means natural disasters will become more frequent and intense. As such, a single location approach isn't a sensible one, nor is it likely to be viable in the long term.
While we're talking about distributing inventory from a supply chain resilience perspective, doing so could also have additional benefits, including:
This is a great way to protect your business from disruption. As a bonus, it can even drive better performance from your supplier network too.
There is so much you can do to diversify your entire supply chain network, including:
If you're going to invest time and resources into developing a resilient supply chain, it stands to reason that you should also invest in being able to measure, monitor, and optimise that resilience.
By using a platform that allows you to visualise supply chain resilience using dashboards, you'll have access to real-time data that will enable you to perform a range of initiatives, including:
The reliance on supply chains throughout the global economy is such that whenever disruptions do occur, they can cause significant pain to businesses. At the same time, the disruptions themselves are typically short-term, although the effects can be longer-lasting.
When your business has a clear strategy for dealing with short-term supply chain disruptions, you help ensure business continuity now while having the flexibility to adapt to a "new normal" should disruption last for a prolonged period.