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Supply Chain Insights

5 Ways to De-Risk Your Supply Chain

Get visibility into the supply chain. Focus on environmental risks. Implement the PPRR risk management model. Leverage contingency strategies. Invest in...

Risk management in the supply chain is a way to prepare for and prevent disruptions. It can help you identify and mitigate threats, but it's not simply a set of rules or regulations. In fact, a supply chain risk manager takes into account many factors and stakeholders including the supply chain itself, suppliers and vendors, customers, partners, and other external factors.

What is risk management in supply chain?

Risk is defined as the potential for loss. Risk management for supply chain is the process used to identify, assess and mitigate risks that can negatively affect a company's logistics and supply chain managment. 

To take a step back, let’s answer the broader question: what is a supply chain? Supply chains are complex networks of suppliers, distributors, and customers that work together to produce a product or deliver a service.

In addition to managing the physical flow of goods, like gamma distributors, through your supply chain, you must also consider other potential disruptions such as cyber-attacks or natural disasters (such as floods). Other types of risks include:

  • Regulatory compliance -- You could get into trouble with regulators if your supply chain is not internationally compliant.
  • Supply disruption -- An interruption in the availability of raw materials can significantly increase costs and lower productivity.
  • Quality control -- Poor quality products can reflect poorly on your brand image.

Risks for internal supply chains

Internal supply chain risks are any risks that are in your company's control and they can arise at every stage of your internal supply chain, including:

  • Manufacturing risks – where something goes wrong during the production process, such as quality problems or late deliveries.
  • Business risks – whenever poor planning and control affect your ability to meet customer demand, or when you do not have enough inventory on hand to meet sudden spikes in demand.
  • Planning and Control Risks – this refers to inadequate forecasting and poor inventory management practices that lead to stock-outs and other negative consequences.

Mitigation strategies include: identifying internal causes or triggers for risk (e.g., supplier performance issues) and then working toward solving them through better supplier selection processes; improved supplier relationships; better procurement strategies; etc.)

Risks for external supply chains

External supply chain risks are risks that come from outside of your organization. While the cause of the risk is out of your company's control, the symptoms can be overseen and fought by a logistic and supply chain management team.

  • Demand Risks - The risk that the demand for a product or service will fall below expectations and cause losses to your organization.
  • Supply Risks - The risk that suppliers do not deliver on time, which could result in lost sales, excessive storage costs, and unplanned expenditures like overtime labor or expediting fees.
  • Environmental Risks - The threat of disruptions due to natural disasters such as hurricanes, floods, droughts, or earthquakes. These disruptions may affect an entire region or just one factory within it. For example, occasional floods in Thailand have caused severe damage to some factories but left others untouched; chemical spills due to accidents at factories have disrupted operations for multiple companies at once; specific manufacturing facilities have been destroyed by tornadoes (such as those that hit Joplin Missouri).
  • Business Risks - Any event outside of a company's control – such as natural disasters – could disrupt its ability to operate normally because it relies on resources owned by third parties who might not be able to provide them during events such as hurricanes if they occur during harvest season when workers leave their farms temporarily.

5 supply chain risk management strategies

A strategy for risk in supply chain management is simply an approach that helps you to identify, analyze and mitigate the risks associated with your business activities. When you have a clear understanding of where these risks are coming from, you can take steps to safeguard against them by putting more effective risk management strategies in place.

1. Find strategies to increase visibility into the supply chain

As a business, you want to know that your supply chain is safe and reliable. To do this, you need to have visibility into the financial stability of your suppliers and vendors—as well as product and shipment visibility across the supply chain.

De-risking your supply chain is not always easy; however, there are some strategies that can help:

  • Using a supply chain management system software such as Amplio to get better visibility into suppliers. This will allow you to make better decisions about whether or not they are viable partners for your business.
  • Having strong supplier relationships also helps ensure the quality of products being produced on time for delivery at competitive prices.

2. Focus on the supply chain's environmental risks

The second strategy for reducing supply chain management risk is to focus on the supply chain's environmental risks. In recent years, there has been much more emphasis on this aspect of risk management in terms of business operations and supply chains. Environmental risks are not just about the environment; they can affect the supply chain as well. For example, if a supplier fails to comply with local regulations regarding waste disposal or air pollution standards, it may lead to negative press coverage that damages your reputation and leads potential customers away from purchasing your products.

Additionally, environmental problems can affect profitability by increasing costs related to compliance (e.g., fines) or by disrupting operations because of natural disasters such as floods or earthquakes caused by climate change that destroy manufacturing facilities located near coastlines.

3. Implement the PPRR risk management model

There is a model for risk management called the PPRR model that can help you de-risk your supply chain. The PPRR model consists of prevention, preparedness, response and recovery. If implemented correctly, it will help you reduce your exposure to risk.

What do we mean by “implement correctly”? This includes evaluating your organization's capacity to cope with various types of disruptions (e.g., cyber attacks or terrorism). It also means coordinating across multiple departments within the company (e.g., finance, sales and marketing) as well as with vendors and partners in order to identify best practices for mitigation strategies against potential threats.

4. Leverage a logistics contingency strategy

A logistics contingency strategy is a plan for how you'll handle disruptions, including the use of alternative transportation modes, warehousing services, and other resources. Successful implementation requires a thorough understanding of your supply chain network and its vulnerabilities.

When implemented correctly, a logistics contingency strategy can be used to:

  • Reduce risks specific to the types of products being shipped.
  • Improve delivery times during crisis situations.
  • Minimize losses in case of an emergency or natural disaster.

5. Invest in a software solution

Software solutions can help reduce risks, improve visibility, increase efficiency and reduce costs for your supply chain. In addition to these benefits, they can also help improve customer satisfaction and retention. 

Amplio is the first software platform to predict and mitigate component shortages for hardware manufacturers by improving visibility into their supply chains. If a component is predicted to be unavailable, Amplio’s marketplace surfaces the best available alternatives—including those parts trapped in excess inventory—to minimize disruption to production schedules or product availability for customers who rely on those components.

De-risking the supply chain is essential in 2022

Supply chain risk management is an essential part of any supply chain, whether it’s internal or external. By understanding the risks that exist in your supply chain and taking a proactive approach toward managing those risks, you can ensure that they don’t impact your business negatively.

Written by
Terry Jeffords

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