Your supply chain connects your firm to the rest of the world, supplying the raw materials, completed products, and services to promote your products and services. It has always been critical to the development and growth of a successful firm; however, in today’s market, which is characterized by more powerful disruptors and dangerous hazards than ever before, effective risk mitigation procedures are crucial for safeguarding both business continuity in the short term and competitive advantage, growth, and profitability in the long run.
Understanding the risks that threaten your supply chain and using the best strategies in your supply chain risk management can help you avoid risk events in your global supply chain. Understand the following key supply chain risk management strategies for your business.
1. Prioritize Contingency Planning
Effective supply chain risk management is both preventative and remedial in nature. When it comes to ensuring your company’s ability to maintain operations, as well as the services and workflows that support production, supply chain risk management and business contingency planning intersect. Such planning emphasizes intelligent, flexible, and proactive measures to anticipate and prevent supply chain disruptions wherever possible and clear and actionable steps businesses can take to quickly and effectively restore normalcy following a supply chain disruption.
The most important task is to conduct a thorough risk assessment. Identifying all internal and external risks that may contribute to or create failure points in your supply chain or operations establishes the context for developing protocols and contingencies for mitigating and eliminating them. Multiple contingency plans, prioritized by risk severity and likelihood, should be included in your business contingency planning.
2. Invest in new technologies
Artificial intelligence and advanced analytics must be used in conjunction with human ingenuity to manage supply chain risk in the digital age. To manage your supply chain and the risks associated with it most effectively and accurately, you’ll need a centralized, cloud-based data management system enhanced by technologies such as robotic process automation and machine-learning-based analytics.
By implementing a comprehensive procurement solution that includes dedicated supply chain, inventory, and supplier relationship management modules, you can provide your procurement team with the digital tools to collect, manage, and analyze spending effectively and supplier data.
You may also consider the following best practices:
- Protocols for data stewardship and management should be developed and implemented.
- Invest in cybersecurity education for all employees.
- Maintain up-to-date firewall, anti-virus, and anti-malware software.
- Coordination with your information technology department to add latest security enhancements.
- Create and enforce user roles and internal controls to restrict access to the system.
- Establish and enforce precise compliance requirements for all vendors, including a programme for assessing and managing supplier risk.
- Collaborate with key supply chain partners to develop a shared disaster recovery/business continuity plan.
3. Raise Risk Awareness
Supply chain managers and senior management aren’t the only ones who need to be concerned about minimizing risk in their supply chain operations. It is much easier to identify and manage supply chain risk when everyone is on the same page and has the necessary skills.
Invest in risk awareness and management training for your entire team, and ensure that everyone is aware of the best practices in risk management and their role within them, notably supply chain risks, including those that are most likely to impact your organization, as well as cybersecurity risks and Internet best practices to minimize risk.
4. Provider optimization and redundancy
As part of the original strategic sourcing and supplier selection processes, Enterprise risk management (ERM) principles should be applied to prevent excessive supplier community consolidation. Proper strategic sourcing works much better with a well-balanced supplier portfolio that meets one of two criteria. One example is the provider’s multiple plants or data centre redundancy. This enables the provider to produce goods or provide services in various locations. The other approach is to divide the provider relationship into primary and secondary contractual segments. This ensures that supply chain operations continue even if one production location fails.
5. Familiarize with potential suppliers
Manufacturers can learn about a third-business party’s practices by extensive due diligence. A fair assessment can help in reducing the unwanted risks ranging from knowing whether the suppliers have a strong track record of meeting contractual obligations to existing conflicts of interest in the current business relationships in order to maintain the high standards that your company has. Before bringing on new suppliers and partners, manufacturers must also ensure that the existing supply network can meet current needs.
6. Avoid risks in the sales process.
Certain risks arise from sales operations because it is a crucial link in a loop that returns to suppliers. As the sales process evolves, it may introduce new risks into the manufacturing environment. Manufacturers must understand the liability that sales interactions expose to the organization to address this risk. Sales efforts that are safe and secure can help drive steps toward higher revenue growth.
7. Monitoring financial stability
A financial risk event that can occur due to a supplier’s bankruptcy, market volatility, or a variety of other factors is the possibility that suppliers will face which threatens their financial health, also known as supply chain financial risk. Remember two critical points when monitoring financial stability:
- During the supplier selection process, many businesses conduct a financial health check. That’s a start, but it’s not enough. If you’re not actively monitoring the financial status of your network’s suppliers from the first to the last tier, you’re setting yourself up for a bad surprise.
- If you’re reading about a supplier’s bankruptcy in the news, it may be already too late. There are a number of early warning signs that can alert you to impending trouble. Do make sure you are aware of what they are and that you are on the lookout for them.
As you might expect, the strategy you should implement is determined by the level of risk you believe your organization faces. You will be required to fully understand each risk that your organization faces choosing the best strategy for dealing with it – whether that is through acceptance, transference, avoidance, or reduction. Now that you understand what are various risk management strategies, you should understand how various risk management solutions can assist you to make informed decisions quickly by increasing risk awareness and visibility, among other things.