Finding your Supply Chain Assurance solution: 4 questions to consider
Most large organisations struggle to maintain consistent processes, contractor database…
According to the “Suez Blockage will accelerate global supply chain shift” report published in the Financial Times, Soren Skou, Chief Executive of AP Moller-Maersk, who carry around 20% of the world’s seaborne freight, noted:
“How much just in time do you want to be? It’s great when it works but when it doesn’t, you lose sales“
Soren Skou, Chief Executive of AP Moller-Maersk.
There are several challenges companies looking to improve their risk management, need to consider:
To address these risk management challenges, it is worth considering these three development priorities from a supply chain perspective:
Once you have these key building blocks in place, you need to ensure that you take an appropriate comprehensive assessment approach to the relevant risk areas. These include suppliers’ financial risks, cyber risks, health and safety and CSR issues. In addition, exposure of key supply chain locations to geopolitical risks, natural catastrophes (which are increasing because of climate change) and associated logistical challenges all need to be factored into any risk management strategy. The diagram below may help you think about the various supply chain risk events you might face:
Based on diagram from Paul Hopkin’s “Fundamentals of Risk Management”
Quantifying the financial risk of a supplier or wider supply chain failure, is the first step in successfully implementing a risk management plan. This is best done in terms of profitability impact, but revenue impact sometimes is also adequate. This enables you to understand which aspects of your supply chain to focus on from a disruption perspective, although you should also consider potential reputational and regulatory exposures posed by your supply chain.
There are 4 key steps you need to follow to understand risk exposures within your supply chain:
It is important that this risk management plan is visible, across key business functions like sales, operations, finance as well as procurement and that it is shared regularly with your top management team so they can feedback in terms of their overall appetite for risk, relevant priorities and resource allocation.
The last year, demonstrates that a risk management strategy is not just a critical part of good supply chain and performance management, it is an evolving action plan that needs regular updating and cross functional top management support. Consumers and investors are increasingly expecting companies to pursue a triple bottom line, people, planet, and profit, and they also do not expect interruptions in their supply chain. This requires an agile and resilient supply chain where risk is proactively identified and managed, avoiding or reducing the impact of supply chain issues. In this regard, knowledge is power, and easy access to appropriate, validated, and timely supplier and supply chain data is the foundation to the successful management of risk in your supply chain. If you do not have it, but your competitor does, it is like trying to win a chess game where your opponent can see all the pieces on the board, but you cannot.