How to Master Supply Chain Risk Management
Iceberg, right ahead! This famous line from the 1997 movie Titanic has more to do with supply chain risk management than you think. When your business has good supply chain risk management strategies in place, you’re able to identify and mitigate risks before they cause major damage to your business’ operations, efficiency, and profitability.
But what is supply chain risk management, and how can it be used to effectively deal with your business’ unique risk profile? Read on to learn more about managing risks, and how your business can learn to expect the unexpected.
What is supply chain risk management?
The supply chain risk management process involves identifying, assessing, and mitigating the risks associated with your business’ unique supply chain. Of course, we all hope that business will run smoothly at all times— but this isn’t realistic. Supply chain risk management helps you to look ahead and predict the areas that your business is likely to experience disruptions, helping you to more effectively prepare for and deal with these disruptions as they come up.
Why is supply chain risk management important?
A good supply chain risk management strategy helps to steer your business away from disruptions and issues that can negatively impact your productivity. In this way, supply chain risk management is an important part of keeping your business up and running efficiently.
What are the benefits of Supply Chain risk management?
SCRM can have a large number of benefits for businesses, including:
- Better preparedness for supply chain disruptions
- Higher profits for your business during times of stress
- Better OH&S procedure and business management
- Development of more sustainable supply chains over time
Supply Chain Risk Factors
Single sourcing is exactly what it sounds like: when you rely on a single supplier or manufacturer for all or most of your supply of goods. If you single source, you’re not alone: many businesses single source their inventory either because they deal in specialty items, or because their suppliers offer them a good deal. Unfortunately, when you don’t have a plan B or C, a primary supplier shutdown or delays can have a huge ripple effect throughout your business.
2. COVID-19 Disruptions
In the last three years, supply chains have faced plenty of expensive disruptions as a result of the COVID-19 pandemic. The major risk posed by COVID-19 has been a global slow down in supply chains, leading to increased delays across the world. Another risk is that of labour shortages. When portions of your workforce are sick or in COVID isolation, there can be large disruptions to the day-to-day running of your business. Without your full staff of warehouse workers and drivers available, many businesses experience pile ups of orders that cause shipping delays, which can lead to negative experiences on the customer’s end.
3. The Unexpected
Whether it’s a ship stuck in the middle of the Suez canal or a natural disaster, sometimes things happen out of the blue that can have major impacts on your supply chain. Although we can’t plan for every eventuality, there are still a few things you can do to be better prepared for the unexpected.
Reduce your Risk in the Supply Chain
Every business is going to have a slightly different supply chain, and may be open to different risks. We also all have different resources available with which to handle those risks. Nevertheless, here are a few tips that we think will help the majority of businesses to be better prepared for supply chain disruptions:
1. Conduct a Risk Analysis
You need to know what you’re dealing with before you start coming up with plans to reduce your risk, that’s why a risk analysis is so important. The purpose of a risk analysis is to begin to identify where the biggest risks lie in your supply chain: they might be some of the common risks we set out above, or they might be totally different ones. Usually, these risks can be classified as internal, external, and technical. Note down your primary areas of risk and focus on these first.
2. Diversify Your Supply Chain
Diversification of your supply chain, and a move away from single sourcing (if you can) is a great way to mitigate risk. A diverse supply chain ensures that disruptions to one area of your supply chain won’t lead to a catastrophic loss of productivity for your business, as other areas will still (hopefully) be running smoothly.
The best way to manage risk is to try and steer your business away from risky situations, and the way to do this is by implementing preventative measures. You can develop preventative measures by looking at your risk analysis, and identifying which actions will help you prevent each risk.
3. Develop preventative measures
Preventative measures can include:
- Taking out insurance in areas of high risk
- Improving inventory management
- Taking appropriate COVID-19 prevention measures in the workplace
- Improving reporting and internal communications with a cloud based solution
4. Develop contingency plans
Contingency plans are plans of action that you can take when something does go wrong. In risk management, contingency planning is important because it means that your business isn’t left without a strategy when things start to go southwards: leaving you better prepared and less at risk of falling into chaos when preventative measures fail. Go through each risk you identified and then plan out the steps that your business will take in each situation to begin developing contingency plans.
Invest in Visibility
Want to develop better visibility of your supply chain and inventory? Leaving paper based systems behind is the first step. Experience full visibility and an integrated solution with the Datapel warehouse management system. Easily print and scan barcodes and implement pick, pack and ship workflows throughout your warehouse without returning to the keyboard. Learn more today.