Risk manifests itself in supply chains in many ways. There are several types of risks in the supply chain including: natural phenomenon such as weather, security risks such as thefts, operational risks such as cargo damage, financial risks such as bankruptcy, and cyber risks such as data breaches and hacking. These risks have the capacity to disrupt even the most robust supply chains.
2020 shook business leaders awake to the importance of their supply chain, specifically their lack of visibility into the systems and processes that could hasten logistics and prevent fulfilment issues as (or before) they occur.
As per BCI, the number of supply chain disruptions that organizations encountered in 2020 was higher than any other year with 27.8% reporting more than 20 supply chain disruptions during 2020, up from just 4.8% reporting the same number in 2019. 89% of companies surveyed by Gartner said that they experienced a risk event in the past 5 years. As with any risk, there are also options in supply chain management to mitigate and manage these risks.
Central to this mitigation and risk management plan is running a supply chain that has:
- Real-time visibility
These traits allow supply chains to respond to sudden changes in the market and adapt to changes in market sentiments, structures and strategies.
- A resilient supply chain is one that is able to return to its original form or evolve to a better, more desirable form after undergoing disruptions. Resilient supply chains are flexible, reliable, scalable, adaptable, visible, and agile, and have the capability to adjust to new demands and change as required by the market.
A company that can successfully confront and handle unpredictable and unforeseen disruptions would have successfully managed the inherent risks in a supply chain. Supply chain resilience plays a significant role in supply chain management and companies can develop resilience by increasing redundancy, building flexibility, and changing the corporate culture.
- Agility in supply chains is critical owing to the rapid fluctuations in both demand and supply. Many companies have had to change their strategies and create agility in their supply chains in light of the COVID-19 pandemic – switching between near-shoring, opting for air freight over sea freight for speed, and chartering ships and containers.
- Adaptability in supply chain management is crucial as it needs to be able to respond to changing market patterns and trends. Tracking economic changes and finding out the needs of the end-user, who may not be the direct customer, is important to achieve adaptability.
- Alignment of supply chain strategy is of critical importance and this alignment must happen not just internally but externally as well with vendors, suppliers and other stakeholders in the supply chain.
When suppliers, vendors and other partner stakeholders in the supply chain are aligned, the company is able to optimize its supply chain performance, maximize revenues and achieve a competitive advantage.
- Real-time visibility provides the data required by supply chain managers to monitor and track market trends and the movement of their respective supply chains. By tracking these changes globally, supply chain managers can make their supply chains adaptable and agile. For example, the creation of alternate supplier networks which may result in quicker lead times and cost-effectiveness apart from providing alternate sources. Real-time supply chain visibility aids in obtaining a better understanding of the performance in various parts of the supply chain, and can provide alerts on issues that could turn into problems.
There are also other risk management strategies as below that work along with these key strategies
- Conduct regular supply chain audits in order to identify risks in terms of exposure, supplier quality and OTIF patterns.
- Identify the impact of the various risks identified through the audit and the areas it is likely to affect.
- Set up SOP covering best practices that can be incorporated into supply chain operations/management.
- Carry out regular supplier performance audits to ensure and monitor prompt delivery, financial integrity, compliance, risk profiles and sustainability.
- Create a supply chain contingency plan and business continuity plan which is aligned with that of the suppliers.
- Switch sourcing models from single-sourcing to multi-sourcing and also allocate a portion of sourcing from nearshore suppliers. While nearshoring may be more expensive, the quicker lead times could compensate for the increase in cost.
- In addition to regular audits, stress tests on the supply chain can assist in checking for any hidden vulnerabilities.
- Cyber risks are increasing, and data security qconcerns ranked highest among various risks in a survey by Gartner. Assessing cyber security risk and its management through effective use of compliance standards, training, use of new-age digital supply chain platforms are key in modern supply chains.
- It is imperative to have a supply chain contingency plan that maps out the potential risks and is properly documented with a single source of truth that the supply chain team can refer to, should the need arise.
- Risk awareness training for staff is also a key area for supply chain risk management and mitigation. The training should typically cover the various categories of risk that the company and its supply chain can potentially face.
Modern supply chains face a high level for disruptions, especially relating to unprecedented ones like COVID-19 - which is still with us with no immediate end in sight.
Mitigation of supply chain risks needs to be achieved through supply chain resilience and agility. While enhancing resilience, agility, adaptability and increasing competitiveness are some of the important factors in supply chain risk management, supply chains in the 2020s have been forced to be prepared for unprecedented, fast-developing disruptions. While supply chain managers may not be able to control the various risk events that the business generates, they can control the size of the target through a strategic approach to risk management.
Aside from a digital transformation and organizational transformation, there must be a strong collaboration between the various heads who look after supply chain and risk managers along with the usage of innovative technology solutions and advanced analytics in order to effectively manage risks in supply chain.