Risk Management for Your Supply Chain
Welcome back!
As businesses continue to grow, one area with consistent challenges over the years is supply chain. “Supply chain” as defined by Merriam Webster is “the chain of processes, businesses, etc. by which a commodity is produced and distributed; the companies, materials, and systems involved in manufacturing and delivering goods”[1] . Companies for decades have strategically purchased materials and services through domestic and international vendors based on costs and availability. With new challenges each year such as rising costs, availability, natural disasters, supplier manufacturing issues, cyberattacks, etc., performing a supply chain risk assessment can help identify, assess, prevent potential operational disruptions, and keep businesses sustainable.
Performing a robust supply chain risk assessment proactively addresses potential issues that could impact a company’s operations, reputation, and financial performance. Let’s dive into this in a nutshell, below are items for consideration when performing a supply chain risk assessment.
Identify and document risks: Understand and identify potential vulnerabilities within the supply chain for all areas, including raw material procurement, manufacturing, and logistics.
Risk Assessment: Evaluate the potential and how likely the impact of these identified risks will impact the business from delayed operations to complete shutdown.
Develop Mitigation Strategies: Implement plans to address identified risks, such as having a diverse portfolio (multiple suppliers for the same products or services), build inventory buffers for defined timeframes, and establish contingency plans.
Risk Treatment Plan: Develop a plan to address identified risks, including mitigation strategies and contingency plans.
Continuous Monitoring and Improvement: Regularly assess and update risk assessments and mitigation strategies to adapt to evolving circumstances. Use predictive models to prepare for potential future disruptions.
Keep in mind the different types of risks:
Financial Risks: Currency fluctuations, supplier bankruptcies, and cost variations and fluctuations.
Geopolitical Risks: Political instability, trade wars, and sanctions.
Environmental Risks: Natural disasters, climate change, and environmental regulations.
Supply Risks: Supplier failures, material shortages, and disruptions in transportation.
Demand Risks: Fluctuations in demand, changes in consumer preferences, and seasonality.
Cybersecurity Risks: Data breaches, cyberattacks, and disruptions to supply chain technology.
Operational Risks: Manufacturing problems, quality issues, and logistics delays.
Tools and techniques:
Supplier scorecards allow a company to evaluate, track, and trend the performance of suppliers based on predefined metrics.
Using risk registers to document and track identified risks and their mitigation strategies is another tool that helps analyze risks before they become problems.
Contingency planning develops backup plans to address potential disruptions.
Data analytics use data to identify trends and patterns in supply chain risks.
Audits and re-audits of suppliers are also part of the assessment and should be considered if there are any deficiencies and the impact to your business operations. For companies reevaluating their offshore supply chains due to disruptions, costs increase, and availability, understanding the risks, costs, and impact of reshoring is essential for business sustainability. Check out the white paper with these insights and strategies here by the National Institute of Standards and Technology NIST [2] .
Let us know if you have any questions about supply chain risk assessment and the impact to your business! Check back for our future blogs on auditing and quality agreements as part of qualifying suppliers and building partnerships!
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