‘Audit’ your Supply ChainGenerally, supply chain risk management rests on knowing the likelihood and the potential impact of failure right down the supply chain. While it may not be economic to engage logistics experts to work through the supply chain, there’s no reason why smaller businesses cannot thoroughly examine each and every point of their supply chains to identify potential points of failure. This exercise should involve asking the following three questions:
- Where are the points of failure?
- For each point of failure, how likely is it that a significant disruption will occur?
- For each point of failure, what are the consequences of a significant disruption?
Avoid bottlenecksIf you can draw your supply chain on a straight line, there will inevitably be bottlenecks when something goes wrong. Relying on a single supplier at any stage of the supply chain exposes your business to significant risk. Once you have identified the points of failure in the supply chain, start to think about how you might work with more than one supplier to mitigate the risk of poor supplier performance.
Respond to new developmentsDespite your best efforts to mitigate risk, disruptions can still occur from time to time. If and when this happens, consider the likelihood and impact of ongoing or repeated failure. This could involve discussing risk factors with the supplier to strengthen their reliability, but could just as easily involve exploring alternative supply options.
Business continuity: consider the worst-case scenarioAuditing the supply chain involves a forward-looking assessment of risk and consequences based on your understanding of your business’ supply chain. This understanding will be, either explicitly or intuitively, based on historical supply chain performance. In assessing future risk based on historical performance, it can be easy to forget about infrequent, but potentially devastating events such as natural disasters. A comprehensive supply chain risk management strategy should consider these risks as well.
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.