Supply chain risk is heavily responsible for stress and sleepless nights on the part of managers. It’s hard to have a complete grasp on all types of supply chain risk because this risk comes from so many angles: delays, disruptions, forecast inaccuracies, systems breakdowns, intellectual property breaches, procurement failures and capacity issues are all examples. The nature of today’s global marketplace has only multiplied the potential exposure to this risk. An earthquake, war or terrorist attack on the other side of the world can cripple your supply if it affects your supplier’s production plant, or a shipping route. No business is immune from supply chain risk, but the following principles will allow you to minimize exposure and quickly deal with any problems that do arise.
- Monitor pressure points
It may be obvious that identifying risks of supply chain problems is the best way to prevent or mitigate their occurrence. However, there is value in working out where your business is exposed, whether this is with particular key suppliers, internal issues, or other factors. Doing so allows you to monitor the “pressure points” so that you can react quickly when a problem does occur.
- Make informed choices
An easily made mistake is failing to realize the full extent of a certain supply chain risk, or how it may relate to other risks. For example, using a just-in-time inventory method will reduce the risk of over forecasting demand, but it will also exacerbate the effect of a production shut down or other disruption from your supplier. Ultimately you have to make a choice between options to find a balance of risk that you are comfortable with. The more you understand the different risks, the more informed decision you can make.
- Develop multiple supplier relationships
If you obtain all your stock or raw materials through a single supplier, naturally you are going to be exposed to a lot of risk from the possibility of issues with that supplier. Spreading your risk over many suppliers is good, but don’t let this be at the cost of building quality relationships. A handful of suppliers you can trust is usually better than having lots of suppliers that give you variable service.
- Make use of IT
Information is an invaluable tool for dealing with supply chain problems. If a crisis does hit, having real time information on your business, your suppliers, and your customers allows you to quickly perform the analysis needed to come up with the best solution. As well as this reactionary function, information sharing can also increase resilience to supply chain breakdowns, such as through improved alert and warning systems, and identification and elimination of supply chain bottlenecks. Inventory management software is helpful in this regard, especially when integrated with other businesses in the supply chain.
- Make sure employees know the plan
It’s common for an organization to have plans or strategies in place to deal with certain risk, but these are of limited use if kept at management level. If employees are educated on the risks that could affect them, and what to do about potential disruptions ahead of time, things will run more smoothly in the event of an actual disruption.
- Adapt your systems
Finally, when a supply chain disruption does occur, don’t simply “take the hit”. Be proactive about how you can prevent such a disruption in the future. If a particular supplier has been unreliable, change your orders to rely less on them. If raw materials of a certain type are hard to source and are frequently delayed, consider whether you can use different materials. Be creative in thinking how you can adapt to reduce future risk.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.