All businesses face risks, and your business is only as strong as the weakest link. A failure on the part of any supplier or other supply chain partner could result in cascading problems across your business, and supply chain. However, today’s supply chain technology can help manage vendor relationships, improve payment protocols, overcome geographic challenges, ensure continued success through information technology (IT) patches and provide the end-to-end visibility necessary to gain effective control over your supply chain risk management strategies. Let’s take a closer look at how supply chain technology aids in risk management.
Understanding your suppliers is key to effective supply chain risk management. Your organization should have a strong track record of documenting supplier relationships, including potential conflicts of interest, weaknesses and strengths. Furthermore, potential risks to the environment or your employees for certain supplier activities should also be documented, reports Deloitte. This will help your company determine how your supplier relationships affect your company through external and internal factors.
Supply chain technology that enables end-to-end visibility also improves accountability and reduces risk throughout your supply chain. When your company can thoroughly see where everything goes and how it moves, your company can assess the potential risk to its operations. In addition, increased visibility through supply chain technology can help your company overcome risks relating to poor order accuracy, consumer upset and more.
Problems will always arise, and supply chain technology helps your company use data to resolve disputes. This may include disputes between payment for goods ordered versus actually received from suppliers, by consumers and from other parts of your supply chain. Also, 29 percent of Deloitte respondents cited past experience with supply chain waste, fraud or abuse within the last year. These risks can be successfully mitigated by a strong digital “paper trail.”
The most robust risk management strategies are ineffective if your supply chain does not understand all of its potential risks, including risk in sales operations. According to John Verver of ACL, companies must identify and categorize all enterprise and functional risks when considering expanding operations into new and emerging markets, as well as technological considerations when creating multiple distribution centers. Automated monitoring of activities and assets in sales operations will help companies develop comprehensive controls, automate data collection and analysis and improve success.
As explained by Edwin Lopez of SupplyChainDive, supply chain risk management must go back to understanding the types of risks, including cyber risks, financial risk, labor risks, risk from natural disaster and politics. Furthermore, your supply chain risk management strategy must leverage scenario analysis to determine which these risks will come to fruition, which can be used to help reduce the chances of occurrence.
Risk within supply chains seems to be growing daily, and the recent Equifax hack highlights how costly a failure in any part of your system can be. While your customers may be willing to forgive you for a delayed shipment, if their data is compromised, you might as well close up shop. However, today’s supply chain technology can provide the boost to your supply chain risk management strategy necessary to overcome the financial, (IT), geographic, political and other risks inherent in your company. So, what will you tell your customers when they ask, “Why haven’t you upgraded your systems yet, and how could you let this happen?”
Supply chain risk management and resiliency are hot-button topics in the industry. However, minute supply chain entities do not understand how resilience relates to risk management and what it means for improving focus on the supply chain. As the supply chain continues to grow in complexity and regulation, the opportunities for problems and other events to impact operations negatively will consequently grow. As a result, supply chain entities need to understand how risk management and resiliency applies to both good and bad situations and how an organization can improve supply chain risk management and resiliency processes.
Risk is defined as anything which may impact a business’s operations, typically in a negative manner. However, this does not necessarily imply that something bad happened. For example, one risk could be a sudden increase in demand for a product. As a result, executives at the company turn to manufacturing and the supply chain in order to increase production. However, what happens if the company is unable to handle this increase in demand and loses customers, integrity, and brand reputation as a result? This is where supply chain risk management comes into play, and resiliency is comparable to the continuation of risk management after addressing a given risk.
Deloitte has identified many different risks that both Supply Chain and Logistics Directors must understand for effective supply chain management. However, most risks can be categorized into macro environment risks, extended value chain risks, operational risks, and functional risks. Each of these rest categories the specs of Civic parts of the supply chain and relate how is supply chain entity can comprehensively evaluate the potential problems across the entire organization.
Macro environmental risk refers to broad forces that affect the entire business. Extended value chain must follow and center around a given company’s upstream and downstream supply chain partners. Operational risks are those that may occur within a given factory, and functional risks are those that our business functions to support the supply chain entity, such as IT development, financing comment and human resources.
According to the World Economic Forum, risk management needs to permeate an entire organization from top to bottom and include several key performance indicators. In addition, respondents in a 2012 report found three leading risk concerns among the modern supply chain are: social contract disintegration, inflexible and uncoordinated regulation, and cyber security risk. Ironically, each of these three key concerns relates directly to the types of supply chain risk. Additionally, each concern is directly involved in how an organization responds to the materialization of a problem.
No. Eliminating all risk is simply unrealistic. Risk exists in every part of a supply chain operation. An earthquake could occur. A flood could happen. A company’s domestic location could suddenly go to war, financial markets could collapse, and an executive could theoretically “run off with all the money.”
Obviously, some risks are more likely to happen than others, and a supply chain entity needs to be able to respond to the materialization of a risk through a set, planned course of action. Essentially, the company needs to have a plan for resilience
Resilience is defined by an object’s ability to return to a previous state. For example, a stretched spring-like toy will return to normal size when pressures are released. In the supply chain, resiliency refers to how an organization or other supply chain entity responds to a specific pressure, meets the demands of such pressure, and returns to a pre-pressure state. Ultimately, resiliency is how a supply chain entity continues to exist and maintain productive value as if nothing happened when something did, in fact, occur.
Resilience is simply a measure of how quickly a supply chain can respond to a given event, which may involve a natural disaster, increase in customer demand, or a recall, among many others. As the world has become more involved on a global basis, the need for resilience includes many different approaches and responses to potential problems. Furthermore, resilience requires dedication across the entire organization, including IT-based processes, data collection, picking, invoicing, and all other processes. Resilience does not imply an organization must spend millions to effectively manage and mitigate risk. As explained by Rich Becks, resilience can be best exemplified through three approaches.
When one part of the supply chain does not have access to data or insight into other tiers, the organization is at risk for the exacerbation of problems within silos, which could result in further problems. As a result, supply chain entities need to have access across an organization’s scope, often by integrating systems such as a TMS to an ERP, which improves decision-making capabilities by providing accessible, credible data for a basis.
As previously discussed, collaboration between supply chain entities is critical to maintaining efficiency. When something unfortunate occurs, a given entity needs to be able to communicate with external parties, such as suppliers, shippers, or other parties. This level of collaboration allows for adjustments from suppliers and distributors and meet the demands of the specific incident.
For example, a sudden surge in order demands may warrant immediate expansion of contractual requirements for a supplier, and the supplier may need to increase shipments for time period X. Similarly, the distributor would need to increase shipment processes to meet the sudden surge. Essentially, real-time collaboration puts the entire supply chain in a position to respond to a given risk or event.
As mentioned previously, companies need to develop a response plan for specific risk. Yet, every flexible response plan should be tested before a problem occurred. This allows the supply chain entity to adjust the plan to meet a change in how a risk occurs or is perceived. As a result, a supply chain can be more apt to return to the previous, productive state after facing a major disruption.
Risk is part of everyday life for supply chain entities, and supply chain risk management is one of the most important factors in overall effective supply chain management. By understanding how risk management relates to resiliency and its role in effective supply chain management, a company’s supply chain can be better prepared to meet the demands of customers without sacrificing shareholder values or the company’s reputation.
To subscribe to our blog, enter your email address below and stay on top of things. We'll email you with a confirmation of your subscription.
Send this to friend