5 Practical Ways Risk Management Builds Supply Chain Resiliency – Supply and Demand Chain Executive | Region & Cash

There has been significant disruption to global supply chains since the early days of the COVID-19 crisis. Now, with a raging war in Ukraine and economic sanctions against Russia, world trade is in further confusion. Businesses across all industries are under pressure to re-evaluate their supply chain vulnerabilities and strategies – and it’s not just the big companies that need to take action.

Small and medium-sized businesses should be equally concerned about these disruptions — or even more so, as they often don’t have the margins to offset significant slowdowns in their businesses and may be less agile in responding to increased customer demands and changes in regulation. economic and technological landscapes. Here, we take a step back from the overwhelming global geopolitical crises that are unfolding to explore five practical ways for midsize companies to use risk management practices to build supply chain resilience.

Think deeply about your supply chain

First let’s define it. A supply chain is the network of individuals, companies, resources (knowledge, public utilities, materials, services, etc.), processes, and technology used to manufacture and sell a product or service. The broad approach of this definition provides a comprehensive approach to building a matrix that improves visibility into your supply chain. As a first step, business leaders must create a comprehensive list of suppliers for each category and then prioritize their suppliers in terms of their level of dependency and the significance of a disruptive event. Next, expand the matrix by starting the risk management process – identify your risks and score them in terms of frequency and impact severity.

Here are two examples of the approach to risk identification and assessment:

  • Consider talent supply chain risks by examining the resources and methods your organization uses to attract, hire, engage and retain talent and manage succession to leadership positions. Quantify the likelihood and severity of above-average layoffs, wage inflation, unionized workforces, recruiting costs, and the sharp increase in demand for wellness services and programs over the next 12 months.
  • Account for risk in the material supply chain by examining critical material dependencies both upstream and downstream. Quantify the value of these supplier relationships and the impact on customers and internal teams in the event of a disruption. Consider alternative sources for the type and quality of goods or services offered in each case. You should also assess your company’s rank and reputation with key suppliers and target your agreements and purchasing strategies. Every supplier has their top and preferred customer list, but is your company on your supplier list? Large utility companies generally offer volume-based pricing or preferential sourcing programs, and for some this can result in prioritized sourcing and delivery during times of crisis. Your mid-sized business could be a big deal to a local or regional supplier, so it’s important to take action to improve your status before a crisis event or disruption occurs.

Improve supplier audit

After you have identified and prioritized critical suppliers, consider adding meaningful contract terms and review processes to key contracts. There are many options for supplier audit platforms, or you can develop your own questionnaires and methods. Here are some sample questions you might ask in an audit:

  • Does your company have a documented supply chain strategy?
  • Does your supply chain strategy clearly support our commitment? As?
  • Is your supply chain strategy supported by clear and understandable functional, team and individual performance goals? Please describe.
  • How do you notify customers of disruptions or bottlenecks in the supply chain?

Another option is to contractually require suppliers to provide their business continuity and disaster recovery (BC/DR) plans and/or test results annually. For integrated suppliers or those on which you have significant dependencies, consider requiring live BC/DR tabletop exercises with creative and relevant scenarios as a Service Level Agreement every two years.

Increase supplier diversity

Many women, veterans and minority-owned businesses have been decimated by the pandemic as their supply chains slowed to a snail’s pace or failed altogether and they couldn’t keep up with customer demand. However, following an infusion of government grants and loans to small businesses and record-breaking private financing, training and infrastructure support, a strong diverse business class has emerged. Diversifying your primary supplier base through targeted new relationships with these types of companies strengthens your CSR profile, fills gaps and creates redundancies in critical areas, drives innovation, and increases brand awareness among diverse demographics.

Clean up siled technology providers

Technology is undoubtedly essential to supply chain management. While it’s often necessary to have multiple technology tools and platforms to support your operations, acquiring technology in a silo can compromise a company’s logistics. Established companies with highly segmented operations and fast-growing new businesses that lack centralized IT roadmaps, review and approval processes often adopt tools and platforms without reviewing their use cases or cross-functional impact. An IT inventory examining the key functions of third-party and homegrown legacy systems can uncover outdated or unnecessarily redundant technology, which introduces further vulnerabilities in the event of system failures, cybersecurity attacks and breaches, and tracking access to sensitive information. Strategic IT planning and technology acquisition discipline are an essential part of risk mitigation as the growing trends of advanced automation, analytics and digital supply chains continue. This is an area where business leaders need to establish tight controls, streamline partners, and audit for security compliance and solvency.

Put supply chain trends in context

There is no shortage of articles on emerging trends in supply chain management, and yet many could not have predicted today’s geopolitical landscape, with an invasion of Europe, soaring global oil prices and the onslaught of ransomware attacks disrupting supply chains on a daily basis. It’s important to stay practical and focus on controlling the right risks in the right way and at the right time for your business because you can’t tackle everything.

Talk to your trusted advisors – insurance brokers, lawyers and trade groups – about relevant trends you need to prioritize for your business and don’t overlook your internal leaders and teams. Internal issues are often a driving force behind supply chain and business disruptions – from talent shortages, understaffed purchasing departments, incorrect financial forecasts, aging buildings and technological infrastructure, employee burnout and more. Focus inward and strengthen collaboration between functional leaders to gain insights into the trends that are most impacting your strategy.

Applying risk identification and assessment methods can help you understand the gaps in your organization’s supply chain management strategy and lead to comprehensive, informed action plans. As you implement, monitor, and adjust these action plans based on lessons learned and emerging risks, your mitigation practices will mature and result in improved risk control.

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