What would happen to your customers if they could not get the products they needed from your company for a month, six weeks or a year?
What would your customers do? Do you think they would still be ‘your’ customers after something like this happened?
Furthermore, what would a significant disruption like this do to the company’s revenue stream?
Supply Chain Risks
Supply disruption happens in more ways and more often than we typically know about.
The Supply Chain Visibility provider Resilinc reported 41 weather events in the first half of 2018 affecting suppliers.
There are other supply chain risks as well such as labor strikes (west coast ports in 2015), global, regional and industry wide raw material shortages (e.g., copper, nickel), and global or regional political issues that can affect supply, costs, and product availability (e.g., foreign country boycotts, tariffs, etc.).
The trade magazine Material Handling and Logistics (MH&L) reported, in their ‘State of the Global Supply Chain’ findings, that ‘40% of manufacturing companies in the last 12 months (as of February 2016) reported a significant supply chain event that disrupted their business.’
The challenge is proactively mitigating supply chain risk and that means to ensure that you can provide what your customers need when it is needed.
This means addressing and eliminating as much ‘risk’ in a company’s supply chain as possible.
Where does a company start if it wants to mitigate the risk in their supply chains?
The first step is a review and ranking of the company’s product sales according to revenue contribution.
The second step is an analysis of what raw materials and components are needed to manufacture the company’s products. These items too are ranked by importance.
The third step involves generating a ‘priority listing’ so that the most important risk issues are addressed first.
The fourth step is to develop a viable ‘risk mitigation strategy’ for each issue.
Finally, the overall plan to mitigate the supply chain risk(s) is developed and presented to senior management for approval. Executive management will either approve the strategy as is or ask the team to revisit the issues and look for other alternatives.
The Bottom Line. Supply Chain risks or disruptions can be paralyzing to a company’s customers and detrimental to its revenue stream. There are many kinds of supply chain risks to consider, e.g., extreme weather incidents, labor strikes, geopolitical issues, etc. The challenge for companies is to proactively mitigate their supply chain risks. To mitigate risk in supply, a company should review their products, analyze raw materials, rank all issues found, and develop a ‘risk mitigation’ strategy. The final step in the ‘risk mitigation process,’ prior to implementation, involves senior management approval of the selected strategy.