Mitigating risks through best practises

As companies have become more successful at operating lean, mean and increasingly global supply chains, the risks of disruption from factors inside and outside their control have grown exponentially. Sources of risk are everywhere, from environmental disasters, such as drought or flooding, to geopolitical unrest, to unpredictable market forces that affect market prices, demand, supply and the ability to grow a profitable business.  Broadly, sources of risk can be categorised into internal and external risks, with different strategies to mitigate each.

Internal Risks

Internal sources of risk are those you can influence and control – the physical resources and business processes that are within your organisation. These risks can take place at the following areas:

Product quality: Poor control here leads to lateness, customer dissatisfaction, unplanned remedial work and potentially legislative breaches.

Asset productivity: The ability to plan and coordinate your materials, production and people assets effectively to meet customer demand. Disruptions in these areas cascade and magnify throughout the supply chain, resulting in unprofitable and uncompetitive business models.

Data integrity across multiple systems: Often products may be missing key data elements that cause problems later on, such as components of their bill of materials, cost information, pricing and supplier codes. Because products today pass through more parties, geographies and systems, the risks for data problems have never been greater.

Lack of visibility: Hundreds of products, comprising thousands of parts, travelling to all points of the globe, make transparency in the supply chain difficult to attain and is a major source of risk.

Mostly, the internal risks are what best practice supply chain management business processes are designed to address. Enterprises that leverage these best practices, along with a range of available technologies, such as demand and supply planning, warehouse, transportation and product lifecycle management, can go a long way toward understanding and mitigating their exposure to these kinds of risks.

External Risks

While many companies are practiced at managing their internal supply chain because they own the resources, the external sources of risks are outside their control and too often deal with reactively rather than proactively.

• Market volatility: Determined by market pricing, availability, competition and consumer trends, demand for a product can disappear overnight, leaving obsolete inventory in the hands of manufacturers and retailers.
• Macroeconomic factors: These factors are controlled by economic growth, interest rates, currency fluctuations, fuel prices and energy costs and such other types.
• Government legislation: Failure to comply is expensive and puts customers, your brand and ultimately your company at risk.
• Natural disasters: Anything from earthquakes to droughts, floods and diseases can have a severe impact on supply chains.

Solutions

In extreme cases, these internal and external risks can take companies down. To avoid being knocked off balance, companies try to alleviate these considerations through risk management strategies. Here are five strategies that can help immunise your supply chain against these kinds of risks:

• Make every employee a risk manager: Managers should be conscious of sources of risk and how to detect it, and they should integrate this knowledge into their daily practices. Overly bureaucratic and complex processes tend to submerge risk management.
• Detect unplanned disruptions to your supply chain in real time: Most companies use key performance indicators (KPIs) at the corporate level as a way to identify supply chain disruption and take appropriate action. However, KPIs only provide insight into past performance. Smart alerting technologies constantly seek out and monitor unplanned events anywhere in your supply chain (late deliveries, inconsistent or missing data, bigger than expected orders, stock right-offs).
• Provide a foundation for employees to collaborate and share knowledge to resolve risks: Collaborative technologies reach out to your internal employees and external business partners, gathering information and improving transparency into and across your supply chain.
• Proactively measure performance and mitigate risk through continuous business process optimisation: Combining collaboration with alerting technologies allow companies to act immediately and improve the chances of detecting the source of the problem and eliminate the underlying source.
• Scenario planning: Obviously, none of us has a crystal ball. But simulating your supply chain can evaluate your sensitivity to such eventualities and help you establish contingency plans. Forewarned is forearmed in supply chain strategic thinking.

Conclusion

In today’s fast-paced global business environment, innovative companies must excel at mitigating risks; their employees must catch potential problems before those events become catastrophes. A tested and proven crystal ball would help, but until these are readily available, other strategies must prevail. Legislative requirements, market turmoil, competitive activity and freak weather events are all tricky to predict with accuracy, but they are not beyond the realm of proper planning.

The author is the VP-Sales and Managing Director, Infor, India.