Supply chain risk is an unavoidable part of running a business. It affects all areas of a company’s business, from sourcing raw materials to selling finished products and services. How to successfully mitigate supply chain risks and avoid the potential costs of supply chain disruption is fundamental to sustainable growth and prosperity.
We need a collaborative and proactive approach that involves all stakeholders throughout the supply chain. Here are five ways you can help mitigate your supply chain risk.
Performing Business Impact Analysis
Before companies can withstand potential supply chain disruptions, they need to be prepared. To be prepared, you need to understand and anticipate the impact of disruption on your business and plan accordingly.
To understand your exposure to supply chain risk, you need to perform a systematic review of your company, its processes, employees, suppliers, customers, and market environment. To do this, you need to perform a thorough business impact analysis of supply chain risk. This helps you understand your potential risks and manage the effects of the turmoil. Identify key business processes and the resources and activities needed to run your business. Next, we will assess how these key factors are affected by supply chain disruptions.
You can quantify and prioritize supply chain risks by identifying the business activities that are most affected by supply chain disruptions. That way, you can focus on what has the greatest impact on your bottom line. Therefore, you can build a culture of positive agility rather than responsiveness and respond quickly and effectively to manage the effects of turmoil.
Developing Backup Supplier
Another great strategy for protecting against supply chain failures is to develop a backup supplier. The idea is to identify an acceptable supplier for the company and agree to ensure capacity for possible needs in the event of turmoil. It’s like a variety of care strategies, but one important difference. It’s cheaper. This is because the cost is incurred only if the source is turned on during the incident.
When using diverse supply chains, companies must bear the cost of maintaining multiple sources, even without the risk of disruption.
Managing Product Demand
If the supply-side strategy is too difficult or costly to implement, an alternative approach is available. It’s about managing demand. The two most important sub-strategies here are switching and ration. In the migration strategy, companies with multiple products may take steps to encourage customers to purchase unrestricted products rather than restricted ones. Using incentive strategies, such as periodical discounts can be a solution.
As part of its distribution strategy, the company is taking steps to initially distribute limited supplies to its major customers. The idea is to make the customers happy who will have a big impact on your future as a company. Of course, the main customers depend on the company’s goals, but it’s important to identify them and ensure that supply isn’t interrupted.
Core Supply Chain Enhancement
All previous strategies provide methods and safeguards against the effects of disruption, but another important method is to take steps to improve the core of your own supply chain. Using operational stress testing and scenario planning, potential mishaps can be evaded as situational awareness increases.
By doing so, companies can identify and correct weaknesses in their current operations in a controlled environment. If not handled properly during a live break, it can lead to a catastrophic outage that the company may not be able to recover.
Working with Suppliers
Make sure you work with and communicate with suppliers. Development of collaboration platform and communication framework to support information exchange. This not only reduces supply chain risk, but also helps reduce costs, reduce errors, and facilitate collaboration on issues such as logistics and security.
Make sure all suppliers are aware of your forecasts and customer demand cycles. If fluctuations occur, they are prepared and can be dealt with more easily. Be positive, not reactive. Integrate agility into cash flow management. Working capital can be used to facilitate demand, so delivery is less likely to be interrupted during peak demand. Pay the supplier immediately. A supply chain with a healthy working capital flow is much less likely to cause internal problems.