It is imperative to understand the interconnected ways of inventory management supply chain risks so executives can tailor balanced and effective risk reduction inventory strategies for their businesses.
Inventory management is crucial to the heart of a business’s profitability, and as such supply chain risk management is of extreme importance. This is essentially where you mitigate against supply chain disruptions, which comprise of major breakdowns of supply, inventory and schedules and delays. This may even include operational risks such as failures or breakdowns of operations, changes in technology, variations in demand and security risks such as theft, counterfeiting, terrorism, piracy and infrastructure breakdowns.
Inventory supply chain risk management
Businesses should take steps to make their own inventory management supply chains more resilient and risk-resistant. When a disruption occurs, businesses need to have mitigation plans in place to prevent loss of market share and to be better prepared or less affected than competitors. This is inventory supply chain risk management.
Inventory supply chain risk management can be described as the intersection of inventory supply chain management and risk management. It has a collaborative and structured approach, and is included in the planning and control processes of the inventory supply chain, to handle risks which might affect the achievement of the supply chain goals, in particular inventory management.
Inventory supply risk management strategies for inventory management include but are not limited to:
- Avoidance – this is exiting a market, or taking a product out of the market, right through to delays in entering a market.
- Postponement – this is a delay in the commitment of resources to maintain utmost flexibility with inventory.
- Hedging – this is locally dispersing your portfolio of suppliers, customers and facilities.
- Control – vertical and lateral integration of suppliers and business partners.
- Transferring/sharing risk – this can be done by outsourcing, off shoring or contracting.
Inventory management supply chains are exposed to a variety of risks that are unique to each inventory supply chain. These risks are related to actions and events that are inside and outside of the inventory supply chain, and largely out of a business’ control. However, an inventory management supply chain risk analysis seeks to identify these risks, their sources and drivers and their impact on the inventory supply chain.
Mitigating the risks
Inventory supply chain risk management seeks to establish mitigative and reliable strategies for how to deal with the identified risks and their potential impact on the inventory supply chain and in particular inventory management. We believe that steps taken to improve inventory supply chain resilience – such as building a culture of risk management across suppliers; improved alert and warning systems; identification and elimination of inventory supply chain blocks; and improved information sharing between government and business – are good business practices and important contingency measures. Businesses that undertake such measures as part of a comprehensive blueprint for inventory supply chain resilience will be in a much better position, not only to bounce back from potential disruption, but to gain legitimate competitive advantages from such events.