Getting commodities to end users involves navigating a complex logistical maze. Whether you’re a manufacturer or retailer, factors always work against your supply efforts.
Most of these forces originate from within the supply chain ecosystem. However, some could emanate from the general external environment in which your company operates. Either way, implementing robust supply chain management protocols can help you mitigate unforeseeable threats to your business and get ahead of the competition.
Read below for a comprehensive guide to creating a supply chain risk management plan.
What Is A Supply Chain?
A supply chain is a complex logistical system that gets goods and services from producers to end users.
The system consists of various actors, including facilities that manufacture finished products and human personnel who direct commodity production and distribution processes. Infrastructural networks determine the efficiency with which commodities flow from production plants to the final consumers.
The supply chain is a highly delicate system. A subtle chink in the armor can throw the entire system out of whack, which underscores the significance of developing a proper supply chain risk management plan.
However, you must familiarize yourself with supply chain risks to develop a robust supply chain risk management protocol.
What Are Supply Chain Risks?
Supply chain risks refer to threats and vulnerabilities associated with getting commodities to the end users.
The risks fall into two broad categories.
The first group constitutes direct threats and vulnerabilities to products and services as they travel the supply chain. Then, there are vulnerabilities to the supply chain itself.
What Is A Supply Chain Risk Management Plan?
A supply chain risk management (SCRM) plan is a framework to mitigate the impact of everyday and unforeseen risks encountered along the supply chain.
The primary objective of an SCRM plan is to address the vulnerabilities highlighted above. These protocols typically result from continuous risk assessment.
How Do I Create An Actionable Supply Chain Risk Management Plan?
1. Understand the Risks
Supply chain risks vary significantly from one ecosystem to another. To develop a working risk management formula, you’ll need to understand the threats in your situation.
Most supply chain risks present as follows;
Economic Risks
Economic risks majorly result from the interplay between demand and supply, both of which are affected by prevailing commodity prices.
Political Risks
Political threats include factors like civil insurrection and the absence of political goodwill.
Environmental Risks
Adverse weather can also present immeasurable challenges to the supply chain.
Ethical Risks
Certain supply chain threats are due to ethical challenges within the business environment which a company operates.
Technological Risks
Technological factors like cyberattacks can slow down the flow of commodities along the supply chain.
2. Diversify Your Suppliers
One of the worst nightmares for businesses is running out of stock. It’s worse if your inventory gets depleted at the same time the demand for your commodities increases.
Fortunately, you can address this economic supply chain risk by diversifying your suppliers.
Endeavor to build meaningful relationships with multiple sources who can avail you of the same product when you need it.
This can help you stay ahead of the competition during moments of acute shortages. It provides continuity for your business when one of your sources experiences disruptions in their operations.
3. Have Alternative Modes of Transportation
Infrastructural failures have become all too common in the recent past. These failures may result from several factors, including adverse weather and security scares.
Relying on a single mode of transport can be disastrous for your supply chain during periods of massive infrastructural dysfunctions. The resultant delays can cause you to lose many high-value clients and adversely affect your company’s reputation.
Therefore, it pays to invest in alternative transportation modes.
If your supply chain has always relied on air transport, perhaps it’s time to explore other options like sea and rail transportation.
4. Maintain Inventory Buffers
Inventory buffers are additional stock you reserve to address unforeseen transportation delays or unprecedented surges in demand. They’re also known as buffer stocks.
Keeping buffer stock helps your business operate as your competitors close down due to low supplies.
Admittedly, maintaining reserve stock may attract significant warehouse costs. However, this supply chain risk management technique can prove instrumental in generating more leads and endearing your existing clients to your brand during biting shortages.
All you need to do is invest in an inventory management app. These software programs continuously track your inventory turnover and tell you when to restock.
5. Benchmark with Worst-Case Scenarios
Think of the most devastating supply chain risks that your business could face and benchmark with those worst-case scenarios.
The idea is to develop a robust framework you can rely on regardless of the threats that befall your company. It’s akin to expecting the best but preparing for the worst possible outcome.
To go about this, you’ll need to rely on historical data. Research the major tragedies that companies in your industry have faced. Was it an act of terrorism, a major oil spill, or destructive weather?
Learn the interventions the affected firms implemented to bounce back, then use the same techniques to develop your supply chain risk management plan.
The Bottom Line
Supply chain risks will always exist. However, taking a proactive approach to mitigate these threats can help avoid the associated downtimes and keep your company firmly on an upward growth trajectory.
