September 2020 | Commentary | The Lean Supply Chain

Lessons Learned: Risk Mitigation Strategies for the Future

Tags: Risk Management, Finance

Companies can help avoid at least some of the pitfalls of supply chain risk—including COVID-19—by developing risk mitigation strategies such as supply chain mapping.

Paul A. Myerson, instructor, management and decision sciences at Monmouth University and author of books on Lean and the Supply Chain for McGraw-Hill, Pearson, and Productivity Press, 732-571-7523

We can also apply the lessons learned from the COVID-19 pandemic to help develop risk management strategies and tactics for the future. Now is a good time to prepare.

To mitigate supply chain risk, your company needs to have the following five capabilities:

1. Digitally integrated supply chains. Just 15% of retailers worldwide have what a recent Warwick Manufacturing Group survey calls "digitally ready supply chains." Many companies still rely on legacy processes, such as spreadsheets, for demand and supply planning processes.

Retailers recognize, however, that they need to better understand automation, artificial intelligence, and other technologies, with a view toward having prescriptive or autonomous supply chains in place by 2025.

2. Efficient versus responsive supply chains. In today's global and dynamic economy, it is important for companies to consider when it is appropriate to operate a supply chain that is more heavily weighted toward being lean (efficient), one that is more agile (responsive), or one that is both, which is known as a hybrid supply chain strategy—for example, a mass-customized product.

Executing a hybrid strategy requires great teamwork, using a digital supply chain to gain the real-time visibility needed to take quick action through flexibility and adaptability.

3. Redundancy where there is high risk. Develop relationships with alternate vendors and suppliers so you can pivot efficiently when delays occur with primary—and even secondary and beyond—vendors and suppliers.

Consider reshoring and near-sourcing, at least as back-up strategies. This is especially critical when operating a global supply chain.

4. Improved visibility, downstream and upstream. You need to not only have visibility, but also be able to use it—for example, a digital supply chain combined with good internal and external communications. Not fully understanding downstream demand shifts and a lack of effective stress tests have left supply chains unprepared, often resulting in the bullwhip effect.

Active engagement with upstream suppliers is also critical for quick and flexible reactions. Employ delivery performance data, capacity data, and control tower solutions to better assess the risk profile for your suppliers' products and services.

5. Sophisticated and integrated "outside-in" demand and supply chain planning. This is where the rubber meets the road, as it's hard to be lean and agile without good planning.

If you have the capabilities previously mentioned, you can achieve a high level of demand and supply chain planning to maximize service and minimize cost. To accomplish this, you need a great combination of people, process, and technology.

There will be constant challenges ahead for your supply chain. You have the choice between planning ahead or reacting to challenges when they inevitably arrive.

I know which I would choose.






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