Identifying and Mitigating Supply Chain Risk

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Identifying and Mitigating Supply Chain Risk

September 21, 2020
By Narta
Supply chain risk comes from many areas, including natural disasters, acts of war or terrorism, supplier bankruptcy, theft, damage and data breaches.

In a recent survey*, more than 75% of companies reported at least one supply chain disruption in the past 12 months. And nearly one in five of them went out of business within 18 months. Companies must develop plans to prepare for, and help reduce, the impact disruptions can have on their bottom line.

    1. Evaluate and Identify Current Risks. Take a critical look at your business and identify areas with risk exposure. Identify and evaluate potential supply chain disruption scenarios.

    3. Prioritize by Probability and Impact. Covering every scenario is impossible, so prioritize potential risks by the likelihood they could actually take place. Then estimate the financial and brand impact of each event. Develop mitigation contingency plans, starting with the most likely and highest impact risk scenarios.

    5. Ensure Supplier Quality. Suppliers can impact your company’s reputation. In addition to ensuring the quality of suppliers’ goods, be aware of how they treat employees, source materials and interact with other partners. Conduct financial due diligence to ensure long-term supplier viability.

    7. Diversify Suppliers. Don’t rely on one source for materials or products. It’s desirable to source from low cost locations around the world, but if goods can’t be delivered in a timely manner, your supply chain becomes vulnerable. Establish reliable secondary suppliers in different regions to minimize this risk.

    9. Be Aware of Suppliers’ Risks. Be aware of risks your suppliers may face, including regulations compliance, country risk, economic and political conditions or anything that may impact their ability to serve you.

    11. Include Partners in Risk Planning. Work with suppliers, transportation carriers, data management centers and customers to ensure they have disaster recovery and business continuity plans that align with yours. Involving them in risk management planning reinforces their importance as a partner and elevates their role in risk mitigation.

    13. Purchase Cargo Insurance. Insurance is important in many facets of life. It should be just as important in your supply chain. Start by understanding that carrier liability is not insurance. Then find a cargo insurance provider who can protect in-transit shipments, as well as warehoused goods, against loss or damage anywhere in the world, no matter the carrier or mode of transportation.

    15. Be Transparent with Partners. Share information, such as increased sales projections, and include partners in product design changes. This helps suppliers have the right product available when needed. Similarly, if sales forecasts drop, let partners know that, too. They’ll appreciate the heads up, and it’ll strengthen your relationship.

    17. Consider Trade Credit Insurance. Slow-paying or no-paying customers can really impact working capital. Trade credit insurance can protect your bottom line, free-up capital and help secure better financing options from lenders.

    19. Review Risks Periodically. Review risk scenarios regularly and identify changes in your supply chain. Preparation is the best way to protect your company from a supply chain disruption.