There are many risks in the supply chain that can drastically affect a company’s profitability, reputation and ability to function optimally. These risks, in recent times, have been multiplied through things such as globalization, piracy, economic crises and exchange rates. Also, the move towards instant gratification and needing everything right now can add further risk.
Ironically, there is a conflict that emerges between current trends toward optimization and lean manufacturing and the ability to manage the increased threat of risk to the supply chain. Lean manufacturing has endless benefits to a company as it promotes the elimination of waste and the enhancement of quality and profitability. However, this requires a reduction in the storage of works-in-progress or raw materials lacking purpose or not being used right away. The supply of raw materials as they are required is called just-in-time supply, and although possessing many good attributes, it certainly opens the company up to risk.
Globalization and alternate suppliers
With the increase in globalization across all industries, the reality is that more and more products are imported and exported, especially if doing so relates to costs saved and continuation of supply despite seasonal changes. With an increase in sourcing products or raw materials from overseas, there are certain risks that have increased or become apparent. These involve things such as piracy and hijacking of transportation routes, economic instability of supply countries, changes in currency and even natural disasters. For this reason, it is advisable to have alternate suppliers on the ‘approved suppliers list’ that have been pre-vetted and a report established which would save time in the event their services need to be utilized to maintain production.
Understanding the customer demand and pre-empting trends
Inventory management programs such as that provided by Unleashed can aid the understanding of customer demands which essentially gives the company vital information in advance about what products will sell and when. This information can then translate into good management of supply chains and therefore the ability to absorb any risks supplies could be exposed to. Part of this approach involves the ability of the research team to pre-empt trends and provide what the customer needs before the customer even knows it. This will help do away with ‘just-in-time’ delivery, as the company will be in a predictive stance as opposed to a responsive one.
Formulating a crisis management team and dealing with customers
Sometimes, it is inevitable that despite meticulous planning, supplies end up jeopardized and as such the company must react and formulate alternate plans. It is beneficial to have a pre-planned crisis management protocol and team to implement it to ensure that any communication and decision issues do not add to the problems at hand. Also important, is having a protocol on how to deal with customers, what to say in the event something cannot be supplied and what compensation (if any) can be offered. Having these things in place prior to any of the risks actually occurring will go a long way with rectifying the situation quickly and still providing the best care and service possible.
In short, adverse events are inevitable, but it is the management of them that sets companies and governments apart. It is essential for the company to seek knowledge about their needs and how they are fulfilled by their suppliers to be in the best position possible to avoid risks in the first instance, or be able to deal with them appropriately should they eventuate.
Topics: lean inventory, profitability, risk management, suppliers, supply chain management