Managing Risk in Global Supply Chains Flashcards
Context
Global supply chain conditions and huge economic swings have stretched business capabilities to breaking point (Covid-19 and Ukraine War).
Companies whose supply chains once ran almost on autopilot now face extreme challenges in both global and domestic markets. Without products to sell, revenues are hit.
Simple Supply Chain
The supply chain extends from the raw materials supplier to the retail customer, taking in factories, workers, distributors, wholesalers and retailers.
External Risks
Environmental risk concerns uncontrollable events impacting business direct or via suppliers and customers, such as:
Wars or civil disruption; Natural events like earthquakes or storms
Changes by governing bodies to legislation or customs procedures; conditions in ports, customs, shipping lanes or flights
Economic instability; Exchange rate fluctuations.
Supply risk concerns the supply of products. A supply chain disruption is defined as a major breakdown in a constituent production or distribution node. Examples can include:
A raw materials shortage, fire or machine breakdown
A missed manufacturing deadline or product quality issue. Even a surge in capacity can create logistical issues.
Escalations of labour issues
Late or disrupted shipping.
Demand risk relates to unexpected changes to product demand. Drops test warehouse capacity, impact working capital and lead to discarded products. A sudden increase can impact logistics and expose factories and their workers as corners are cut. They may be due to:
Failure to track purchasing trends
Economic or environmental factors affecting customers
Damage to the brand’s reputation by revelations of upstream issues like unethical labour practices.
Internal Risks
Process risk relates to disruption to business processes (sequences of managerial activities), in areas including
Manufacturing
Personnel
Reporting.
Mitigation and contingency risk refers to a lack of, or inadequate, mitigating tactics or contingency plans.
Mitigation is a hedge against risks built into operations.
Contingency is a prepared plan and the identification of resources that can be mobilised in the event of disruption.
All stakeholders must be aware of mitigation measures and continually ensure there are no obstacles to implementation.
Planning and control risk relates to how an organisation controls processes and resources. It arises from poor forecasting or planning. In the supply chain, this may concern:
Order quantities and batch sizes
Contingency stock policies
Asset and transportation management.
Supply Chain risk mitigation and management model
Prevention: Take precautionary measures
Preparedness: Develop and share a contingency plan
Response: Execute a contingency plan to reduce the impact
Recovery: Resume operations and get things running at normal capacity as quickly as possible
Redesign the supply chain based on learnings.
Prevention Strategies
Assess social risk by looking at the treatment of workers in all factories and supply chain businesses.
Track the right carrier metrics: i.e. Transit Times, Number of Stops, Average Stop and Loading Times. Also consider your carriers’ route optimization, maintenance schedules and disaster plans.
Consider financial stability when selecting new business partners to reduce your vulnerability.
Harmonise product and plant: Using identical technology for different components provides flexibility.
Use technology like service portals, IoT sensors on containers and automated inventory reports to improve visibility.
Monitoring all aspects of your supply chain can provide peace of mind plus valuable intel into how you could streamline operations
Strategies
Multisource: Add alternative suppliers, or choose one producing in multiple locations.
Nearshore: Seek suppliers closer to your base and/or the end of your supply chain to reduce cycle times for product development and delivery. Regional suppliers can be more expensive, but shortening the travel time reduces risks.
Build inventory buffers: Reduce climate-related risk by stockpiling products. This adds expense but can be worthwhile. New product launches and expansions into new areas are perfect times to create buffers.
Preparedness
Map your supply chain to get a clear understanding of which entities are most vulnerable to risk.
Categorise your suppliers by the potential impact of a disruption
Create a contingency plan.
Establish an internal crisis
response team to make critical decisions in the event of an emergency.
Develop solid communications channels so employees know their responsibilities in the event of a disruption. Document all processes and create a single source of truth they can refer to when executing your contingency plan.
Stay up to date on current events and adapt your contingency plan accordingly. Create Plans B, C, D, and so on.
Conduct internal risk-awareness training for your entire workforce. A risk-aware culture requires buy-in at all levels.
Consistently monitor risk. This is key. Organisations can’t assume they’re secure because they’ve implemented a risk mitigation framework. Every level of the supply chain should be carefully observed for risk indicators
Reducing Impacts After Discovery
Response: Because the speed of response is critical, executives need to understand:
Their risk exposure
How to detect a disruption
What to do.
Recovery: Once discovered, executives must put in stop-gap measures. This makes it easier to:
Quickly recover
Prevent further disruption to operations or customer relationships.
Redesign: Strategic redesign can minimise or avoid reoccurrence or mitigate disruption. It involves:
Developing tools for dynamic supply chain management
Re-optimising the supply chain for resilience.
