April 2013 | How-To | Ten Tips

Minimizing Supply Chain Risk

Tags: Risk Management

Lean concepts such as just-in-time, virtual inventory, supplier rationalization, and fewer distribution facilities reduce total supply chain costs. They also increase supply chain risk. Chris Cameron, solution architect at Exton, Pa.-based supply chain solutions provider Elemica, offers these tips for preventing supply chain disruptions.

1. Identify and assess current risk. Quantify and prioritize risk, then develop a mitigation strategy. Start backward from the customer and gauge the revenue impact of supply chain disruptions. Follow that trail through the manufacturing cycle to the potential sourcing or logistics constraining factors.

2. Identify supply and delivery alternatives. Build collaborative relationships with primary and secondary suppliers, and know which suppliers represent the best alternative sources.

3. Empower your trading partners. Institute a collaboration platform and communications framework designed to facilitate information exchange, while cutting costs and reducing errors.

4. Select vendors in different geographic regions who supply through secondary ports. Maintaining a diverse base of suppliers—even when equivalent materials are available from suppliers in the same region—will help when one country experiences a disruption.

5. Fully engage in supplier relationships. Because you will need to rely on them for help if disruptions arise, monitor suppliers for any potential problems. This includes knowing the suppliers' risk factors: financial strength, compliance with regulations, risk management practices, and the political stability of their countries.

6. Take control of logistics processes. Instead of abdicating to the suppliers' delivery, bring items closer to home where it makes economic sense, and globally source where savings are balanced by assurance of supply. It is crucial to take ownership of both the supply and delivery processes to understand the inherent risk, regardless of who has economic responsibility for delivery according to the terms of the sales contract.

7. Jointly plan and collaborate about potential supply chain disruptions. Include suppliers, logistics service providers, and customers in your collaboration plans. Drive toward mutually available risk plans for each link in your supply chain.

8. Build flexibility into processes so you can promptly adapt to changes with minimum impact. Share forecast and demand information with trading partners so you can be more responsive to customer demand fluctuations. Develop a corporate culture of agility, rather than reactivity. Agile companies can respond rapidly and effectively to manage supply or demand changes.

9. Optimize inventory buffers and safety stock levels. Make sure you have enough supplies to keep producing.

10. Be proactive. Increase visibility into supply chain operations, including event management that enables tracking and monitoring material flow as it happens. Incorporate analytics to identify patterns as they develop for data-driven pre-emptive action.