Globalization and technology have created myriad opportunities in new markets, to an eager clientele of both local and international customers. There’s also much greater interconnectedness between sellers and their partner suppliers, which helps move products on a scale frankly unimaginable from before. But regardless of how technologically advanced and connected the market may be, one challenge that remains for companies is handling risk within the supply chain.
When it comes to supply chain management (the oversight of sourcing, production and logistics of merchandise), there are two particular types of risk. The first is external risk, or risk that exists outside of the company but can still affect these operations. Examples of external risk include acts of God, natural disasters, economic turmoil in one of the states engaging in trade, and the like. Internal risk, on the other hand, pertains to risk that’s inherent in that particular company’s supply chain. This includes problems like poor inventory planning, IT problems, defective machinery, threats of theft or cybersecurity threats, and so on. Either type of risk can cause a ripple effect to occur throughout the supply chain.
Companies usually uphold the classic mantra of PPRR — prevent, prepare, respond, and recover — in their supply chain management practices. In simple terms, it involves knowing the risks, monitoring events to prevent problems, and moving as quickly as possible to recover from shock or damage. If you’re looking for ways to bolster your risk management skills within your supply chain, here are six helpful tips for you. These will guide you in adapting the four PPRR principles for supply chain risk in innovative ways.
Upgrade Your Existing Technology for Supply Chain Management
The first thing you can consider to better equip your company against risk is adopting new enterprise risk management software. For one, this will allow you access to a single unified system for all supply chain-related data. If your company is growing and your supply chain database is constantly expanding, this software will help you visualize the supply chain structure. The bird’s-eye view of your supply chain, so to speak, will make it easier to identify both internal and external risks and predict their implications.
You won’t be able to deduce how truly at-risk your supply chain is if you can’t lay out the numbers clearly. Software with excellent risk management and data governance capabilities will allow you to make sense of the many pieces of data involved in your supply chain. Once you’ve gotten the hang of handling supply chain data like costs, revenues, and capacities, you’ll be better prepared to respond to any consequent risks.
Enforce Security Protocols for Every Technological Addition to Your Supply Chain Management Tools
If you do choose to upgrade your technology, you must be able to beef it up against the internal risks to your cybersecurity. These include attacks from hackers or the introduction of malware to your supply chain management system.
Among the security protocols your company can uphold for its new supply chain management system are the following:
- The enforcement of strict data stewardship standards for those who will be handling the system’s data
- Holding IT training for those involved in managing the system, like supply chain managers and warehouse technicians
- Drafting comprehensive enough disaster recovery plans with your software vendor
Actions like these will protect your system against grave threats, as well as improve the overall efficiency of your employees.
Frequently Monitor and Document Your Supply Chain Risks
The tricky thing about the nature of risk is that it always changes. For example, stormy weather can be considered a big risk to the manufacturing, delivery, and sale of your company’s products for one quarter. But it may not be so much of a risk, and therefore not deserve so much of your attention, the next quarter. At the same time, new risks could pop under the radar, and if they aren’t detected right away, they could wreak new havoc on the supply chain.
The best response to this is to make risk monitoring and documentation protocols a consistent part of your workflow. You and your staff should always be prepared to survey risk and know the exact conditions that power your supply chain. It should be second nature to have access to this information and know who to forward it to for appropriate action.
Explore Using a Probabilistic, and Not Just Deterministic, Supply Chain Model
Another course of action you may want to consider is exploring a supply chain model outside of the traditional deterministic model. A probabilistic model may afford you even greater flexibility at managing inevitable supply chain risks. This model can help you decide on your next actions in light of prospective trends or potential changes in customer behavior. It can also help you adjust to changes that have occurred within the industries involved in your supply chain.
That being said, some companies have already tried to optimize their inventory by deploying probabilistic models. Using this model, they can gauge the best possible postponement strategies and, consequently, lower their inventory risk. Another application of a probabilistic model is calculating the would-be risks of unforeseen events, like acts of God, on the rest of the supply network. The information derived from that model can factor into the client company’s logistics contingency plan. Beyond a theoretical “what-if,” the company can have actual, accurate information that will help the entire network in case these actually happen.
Search for Financial Stability Reports Before Vetting New Suppliers
There may come a time that your company needs to look for new suppliers for its network. It’s prudent to think carefully about what risks may be associated with these suppliers, such as financial instability or lack of financial transparency. It may be possible for you to consult credit rating agencies for financial stability reports on promising suppliers. This will help you learn what exactly you’re in for when you onboard new third-party vendors.
Hopefully, the additional information will temper any fears you have about introducing fresh talent into your supply chain. Of course, it helps to be careful, but unfounded fears shouldn’t keep you from decision-making that may usher in some kind of breakthrough for your business.
Final Words
As tackled in the arguments above, it’s good for your company to be structured, organized, and innovative when dealing with risks to your supply chain. Adopting this stance, and staying true to PPRR, will keep you from panicking when things inevitably go awry. You’ll be able to get back on your feet, engineer a new solution, and keep your customers happy and satisfied. Here’s to wishing that innovation, preparation, and a cool head will contribute to excellent supply chain management practices!
