Would You Be Prepared If…
- A major European or Asian port is shut down for weeks due to a strike, earthquake, explosion, hurricane or attack?
- A major tier two offshore supplier suddenly goes bankrupt or ceases operations altogether?
- The lead time – not to mention the costs – to obtain key commodity inputs triples?
- Energy and oil costs soar globally OR drop drastically causing one of your key suppliers to go out of business?
- Instability within the Middle East expands?
- A major offshore supplier decides to enter your space and markets with a lower cost copycat product?
- The U.S. dollar declines, making prior global sourcing / outsourcing decisions cost neutral or ineffective?
- Your local, diverse suppliers are shut down due to civil unrest (e.g. Ferguson, MO)
- Warehousing space is scarce and prices are soaring for one of your distribution hubs (e.g. Denver, Colorado – marijuana industry)
- Wildfires in the west wipe out a significant portion of your customer base
- Major factory explosion shuts down a major port
Every single one of these events have happened and in many cases have taken the Supply Chain organization completely by surprise. The recent free fall of the Chinese yuan gives us pause once again to consider how we are managing risk. While you cannot prevent these events from happening, you can be prepared if and when they do happen. You don’t even need to be a global company with global customers / suppliers to be at risk – many of these type of events are happening in our own backyards.
So how should we think of risk management? Very simply: Risk Management focuses on minimizing the chances of “stuff going wrong” and the impact of the “stuff” if it does occur. Risk management focuses on events that would impact customers, suppliers and internal business units. The objectives of Risk Management should be:
- Reduce exposure to events that threaten our objectives
- Provide a systematic approach for:
- Identifying and assessing risks;
- Mitigating risk;
- Monitoring progress in reducing risk
Aside from some of the risks we noted above, here are some other potential risks that can significantly impact our Supply Chain.
What you should notice about this list is that it is NOT all external. There are risks we face every day internally that can impede our success. We need to identify and manage those risks as well. In some cases those risks may be easier to control because they are within our four walls, in other cases not so much.
Here are some Next Practices to managing risk:
- Identify and rank supply risks, educate top management and other key internal and external stakeholders on the importance of supply risk management.
- Incorporate transportation capacity and seasonal weather patterns into supply and logistics plans. For example, during hurricane season, consider routing cargo to northern or western ports.
- Consider countering long lead-times and uncertain availability of emerging market supply with near-shore sources that have more predictable lead-times and delivery performance.
- Reevaluate sole-sourcing agreements to assess impact on supply assurance and quality.
- Improve access to commodity and supply market intelligence, and supplier financial and operating risks.
- Incorporate potential supply risks ─ such as political, tariff, and weather issues ─ into costing models and sourcing allocation decisions.
- Assess supply chain hierarchy to avoid constraints and risks of sub-tier suppliers.
- Conduct more frequent audits of strategic suppliers, especially those displaying high risk.
- Establish cross-functional supply risk management teams ─ including procurement, supply chain, logistics, finance, manufacturing, and operations ─ to define risk assessment frameworks and develop and communicate contingency plans.
- Share improvement tactics with tier one suppliers and encourage them to work with tier two and tier three suppliers to maximize supply quality.
- Adopt technologies to improve supply chain visibility and event management of tier one and sub-tier suppliers.
- Establish formal supplier performance metrics and reviews. Consider use of supplier performance management (SPM) systems.
- Apply supply assurance evaluation to broader business objectives, including manufacturing site location, outsourcing plans, etc.
- Improve demand planning and communication of forecasts to suppliers.
- Leverage analytical tools to assess / predict supply performance & test contingency plans.
- Use spend analysis tools to ensure enterprise spend is clearly visible.
The next time someone at your company asks you . . . . . “Would we be prepared if . . . . . . . .” be prepared with an answer that displays the enormous Value Sourcing / Supply Chain plays within the organization.
Join the conversation and let us know what you think . . . . . .
If you are intrigued, I would be happy to email you more material (case studies,decks, etc.) on the topics we cover.