Supply chain risk and how to avoid it

6 tips for managing risk

 

Risk is big news. Spend Matters readers recently cited risk as the number one issue they are stressing about, ahead of tail spend and the future of work. SCM World’s 2017 Future of Supply Chain survey illustrated how our level of perceived risk has increased. Previously high-risk areas included supplier failure, price volatility and material shortages; now there is a shift to areas outside of our control. Respondents listed data security, natural disaster and even war as areas they are ‘very concerned’ about.

Supply chain professionals find themselves managing risk through quality relationships and analysis to preparing for the unknown. The fear of security and political threats are not unfounded, with recent events and political uncertainty widespread. Yet, mitigating risk is grounded in collaboration with suppliers, cooperation with stakeholders, dual sourcing and continuity plans.

The level of ‘very concerned’ still also applies to the financial failure of a critical supplier, imitation goods and breach of IP. Ensuring supply chain resilience is more important than ever, so how can organisations meet these demands? Here are six steps to help you take a practical approach to supply chain risk.

1. Visibility

When thought of in financial and legal terms, risk analysis fails to address the complex factors which could impact the supply chain. According to the Supply Chain Resilience Report, 66% of managers don’t have visibility of their supply chain, although 70% had faced disruptions (41% with key suppliers).

Companies need a clear view of what good looks like and how to measure it, as well as identifying any weak links in the process. This risk assessment should detail mitigating actions or alternate solutions.

2. Create ownership

Visibility needs to extend through departments, with ownership of the whole chain. This will allow risks along the chain to be managed and not siloed – while legal and compliance interpret regulations and legislation there must be ways to work with it operationally.

3. Define accountability  

No one wants to spend time on a tick-box exercise. Rather than being the exclusive remit of audit and compliance, risk is part of financial and operational accountability. Defining who implements the various elements empowers operational staff to ensure that plans are applied when necessary. From controlling, avoiding or transferring risk, each department should know the approach required. 

4. Know your suppliers

When considering a new supplier, ensure that you get to know the company and their track record for supply. Are they good at meeting contractual obligations? Do they have the same high standards that are important to your company? Is your incumbent supplier best placed to meet your needs, and will this enable you to develop a deeper partnership and gold star service?

5. Review, review, review

Be sure to regularly review the goods and services that you’re paying for – it sounds obvious but many companies don’t have time for this or lack a review system to gain feedback from stakeholders. Ensure that the quality, quantity and price align with the contract, and that complex invoices detailing multiple services and SKU’s are accurate.

6. Conflict resolution

Occasional mistakes are inevitable in a supply chain. Ensure that you have a clear process for review and escalation, as well as people with great communication skills who can resolve conflicts efficiently – without a breakdown in supply. This mitigates risk, while mutually beneficial resolutions will build relationships and enhance value in the long term.     

Risk is everywhere

Supply chain risk is everywhere, from external weather and political threats to internal risks that could affect continuity and profitability. It can come at any time too, so it’s important to be prepared.
With the diversity of today’s risks, it can be tough to prioritise, so responsibility must extend past traditional compliance to other departments such as procurement, logistics and operations. Keeping up to date with economic and business trends, as well as regular data analysis will help to proactively mitigate risk in your organisation.

 

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