Supply Risk … and Supply Risk Management … are among my favorite topics because supply risk is everywhere … even where you least expect it! Just ask Boeing … a company that had to delay the launch of its next major commercial aircraft for want of a fastener!
Given the underestimated importance of this topic, I’d like to point out a recent article in Global Logistics & Supply Chain Strategies, recently reprinted on Supply Chain Brain, called Snake Eyes!!! The Failure to Manage Risk in Supply Chain Can Be Catastrophic.
Strikes, storms, congestion, disease, terrorist attacks, supplier failures, missed deliveries, raw-materials shortages: the possibilities seem endless. When it comes to supply risk, the possibilities are. And it’s not just natural disasters, work outages, or power failures you need to be concerned with. A fastener, a screw, even a dab of glue … each of these can shut you down if you overlook them.
The article, although a bit long winded, did have some good advice. And even though I’ve covered most of it in previous posts, it’s important, so I’m going to cover it again.
- If a competitor starts locking up large quantities of supply for a raw material or component you need, take action immediately.
There’s more than one reason Apple conquered the personal music player market and are conquering the cell phone market.
- Visibility is key.
Otherwise, you might be on the receiving end of the bullwhip.
- Balance the Cost of Mitigation vs. the Cost of Recovery
For example, if your copper is being supplied by a single supplier, that’s probably not great, but chances are you can always switch suppliers in a pinch and not pay much more than market price (as there are multiple geographic sources). But if your tomatoes are only being supplied by a single supplier that only buys from one geographic area in a hurricane zone, that’s a recipe for disaster. Not only would you lose your supply, but so would everyone else that buys from the same region. Finding a new source of supply in a pinch could be a lot tougher.
- Asses and Rank all of Your Supply Risks
What’s the probability of it happening? What’s the potential cost of an outage in recovery? How much would it cost to mitigate?
- Don’t just focus on physical risk
Forthcoming regulations can post risks that are just as harmful if they cut off a current source of supply.
- Look for hazardous materials
And eliminate them if at all possible!
- Use dynamic scenario planning and capacity modeling
It will help you identify some of the hidden risks.
- Hire a few tight ends for your risk management team.
They’ll help you block out distractions, catch passes from your supply chain partners, and create a stronger pocket in your supply chain organization.
- Communicate, Communicate, Communicate, Communicate
And don’t forget to Collaborate, Collaborate, Collaborate, Collaborate!
- Portfolios aren’t just for artists!
Having a portfolio of good supply chain partners can help you out if things go sour.
- Have alternate distribution strategies.
It’s not just overflowing ports that you need to worry about, it’s border closings, and, every now and again, collapsing bridges.
- Don’t forget … services are part of the supply chain too!
Good service is often the key to customer retention.
Risk is Everywhere … and if you don’t find it, it’ll find you!