What will the weather be like today? This may seem like an everyday conversation-starter, but when it comes to operating a business, this question can cause major angst and distress for supply chain and logistics professionals.
In today’s extended supply chain environment, it’s nearly impossible to completely avoid bumps in the road. Whether it’s delays, safety threats or even natural disasters unexpectedly causing issues, many supply chain risks can be hard to bounce back from, especially if not properly prepared for them in the first place.
It’s undeniable that supply chain management is a complex task that encompasses countless unforeseen responsibilities, but this does not excuse the absence of risk mitigation. Although it seems rather daunting, in order to achieve a well-oiled supply chain, potential risks must be prepared for.
The following are six supply chain hazards to be aware of, along with tips to help your organization best approach risk mitigation.
#1: Financial Insolvency
The more you rely on suppliers, the more dangerous their bankruptcy is to your firm. Let’s look at Range Rover, for example. In 2001, the company was caught off-guard after its single chassis supplier, UPF-Thompson, declared bankruptcy. If we can learn anything from this example, it’s to protect yourself from insolvency. First, collect financial records as part of your supply chain risk management process. Then, be sure to share this data internally with your affiliated parties involved in the hiring process. Lastly, store that collected information in a central location where it can be easily and quickly read.
#2: Safety Threats
Lawsuits, damages and stoppage costs can end up costing a company billions of dollars – even from a single misstep. The fact is, every supplier is a potential liability and introducing them into a supply chain means taking on their additional risk. However, there are ways to beef up safety measures, such as developing emergency action plans, instilling a culture of open communication and taking measures to assure suppliers are properly vetted.
#3: Interconnected Risks
A common mistake amongst supply chain managers is failing to see how an incident can affect more than just one aspect of a company. The key to understanding the interconnectedness of supply chain risks is creating tailored, balanced and effective risk reduction strategies. This means taking steps to prevent and prepare without reducing profits, seeking additional profits for any level of risk protection/preparedness and attaining the highest achievable profits for varying levels of supply chain risk.
#4: Sustainability Concerns
Ecologically destructive practices, excessive carbon footprint energy and non-renewables consumption and countless other issues all affect the definitive sustainability of a supply chain. Much like risk, when introducing suppliers into your supply chain, you also introduce the ecological, financial and ethical impacts they bring with them. To avoid any negativity associated with your organization, request suppliers to provide the following:
- Total annual carbon emissions in the most recent year
- Total annual greenhouse gas emissions in the most recent year
- Agreement to your global sustainable practices (Anti-Bribery, Corruption)
- A business continuity plan
- Publicly available guidelines that address sustainability.
#5: Disruption Hazards
Disruptions: they’re often unpredictable and damaging in their very nature. In March 2000, lightning hit a power line and started a fire at the mobile phone microchip manufacturing firm, Nokia. As a result, the company had to switch its chip orders to other Japanese and American suppliers. However, thanks to its multiple-supplier strategy and responsiveness, Nokia’s production suffered little during the crisis. In order to be fully prepared for this type of disruption and beyond, it’s wise to have a contingency plan in place to protect the flow of business and ensure the supply chain continues to run smoothly.
The last, and often most common, supply chain hazard is delay. It’s crucial to understand your own supply chain and identify where potential delays could come into play. Does the business rely on a border crossing? Is the demand on suppliers going to take a drastic change? Tackle delays by recognizing ways to eliminate a specific delay and compile that information into a central area where it can be easily accessed by others. When the time comes and the company is facing a delay, it will be much easier to mitigate that risk with the proper precautions.