This is part two of the Top 10 Metrics to Track and Manage Risk in the Supply Chain article. Check out part one here.
Disruption is nothing new to supply chain professionals. Weather-related events occur, and public health scares always seem present. Then, the COVID-19 crisis changed the game. Now, figuring out the best way to manage risk is on the minds of shippers and top supply chain leaders. Moreover, the frequency of major disruptions and risks is increasing, says Craig Guillot of Supply Chain Dive. “As the profitability of many organizations is now highly dependent upon an optimally performing supply chain, managers need to move beyond traditional metrics. They must now look to new key performance indicators that can measure their ability to survive and recover from a major disruption.” To achieve that goal, shippers should start tracking these additional five metrics to measure ability to survive a major disruption.
Maintaining compliance with the inbound freight routing guide should be a year-round metric, and its importance grows during times of disruption. Failure to comply with the inbound freight routing guide will lead to added detention charges and longer dwell times for truckers at your facilities. Furthermore, shippers lose control over the inbound freight process when the workflows and rule sets within the routing guide go out the proverbial window. As a result, shippers should maintain a specific metric on the percent compliance for all carriers with the inbound routing guide, as well as the percent of compliance for each carrier, supplier, or other vendor engaging in the supply chain. As compliance moves further away from 100%, shippers should begin to enforce penalties, including refusal to pay assessed charges, to combat the problem and ensure smooth freight management.
While it is disheartening to track the total lost revenue deriving from a disruption, it is essential. Recognizing the fiscal impact of a disruption provides a founding stone for building the business case for better, more efficient risk management strategies and transportation management capabilities to prevent future disruption in your supply chain. Also, it is easier to quantify this cost in terms of total lost revenue on average by carrier, customer, and other supply chain partner.
Proactively managing unrelated risks as during a major disruption is a highly subjective task. Supply chain leaders already have their plates full, and they must also consider the likelihood of other risks impacting the supply chain during a current disruption.
For example, the continuance of the disruptions of COVID 19 could conceivably continue into hurricane season. The forecast for the upcoming 2020 hurricane season indicates a minimum of four major storms and more than a dozen named tropical storms.
As a result, companies should review all available data for other risks, such as mergers and acquisitions, whether -related risks, political changes, and global trade disruptions for a possible percentage of impact to current operations based on the most available data. The exact criteria for calculating this metric will also vary by facility. Thus, it is best to approach it by assigning a risk index value to each possible risk, such as impact from a hurricane’s landfall to your current facility. As the forecast shrinks, shippers should intervene and take proactive steps to protect against the effects of these risks, and in retrospect, understanding the percent of risks that did come to fruition during another disruption will help supply chains identify their weaknesses and opportunities for improvement.
Financial matters will come under the microscope during the crisis. Shippers should track the total number of late or missing payments within the accounting department that occur during a disruption. This metric provides insight into whether carriers are properly reimbursing your company for possible freight claims filings, the reversible of detention time charges, and more. In addition, keeping this data intact may be necessary to gain access to available funding under relief legislation.
Finally, the tenth most important metric to manage risk in the supply chain metric surrounds dwell time again. It is possible for dwell time to be assessed as a result of the failures of other companies. For instance, tracker a arrives two hours late, causing a cascading delay in the dock schedule. All subsequent drivers then begin to charge added fees for dwell time. These costs all traced back to the original problem, which was the first trucker’s late arrival. Shippers can manage risk in the supply chain by isolating the original cause of all dwell time charges for a given duration and assessing those charges back to the original cause or carrier. It sounds harsh, but tracking these metrics will help isolate causes of higher costs from dwell time, as well as improve shipper and carrier relationships too.
There is not a one-size-fits-all approach to metrics to manage risk during disruption. However, those that take the steps to safeguard procurement practices and enable smooth product flows can alleviate much of the risk. In addition and according to McKinsey & Company, “Leaders must clearly define and communicate an organization’s risk tolerance. Risk mitigation often has an associated incremental cost, and so it is important to align on which risks need to be mitigated and which can be borne by the organization. An organization’s culture should also allow for warning signs of both internal and external risks to be openly shared.” Clearly, the best path forward lies in the continuous evaluation of both internal and external factors that may contribute to the next big disruption, and the aforementioned metrics can help your company judge those factors continuously.
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