When a freighter stuck in the Suez Canal holds up your raw materials, how does your manufacturing company fill orders? What opportunities are lost to your bicycle shop when a pandemic halts production of bikes and bike parts from your Chinese suppliers? What happens when your custom car business relies on a specific paint colour — and the one Japanese factory that produces it has been hit by a tsunami?
Understanding Your Supply Chain Risk
Outsourcing, offshoring, and lean manufacturing are practices that can help streamline production processes, increase flexibility, and minimise costs. And today these capabilities are available to companies of every size and scope. But with reliance on an external supply chain comes less control over your organisation’s ability to respond when your suppliers are unable to fulfill their orders on time — especially if you work with vendors and suppliers around the globe.
Your supply chain can be disrupted by various factors, such as:
Many companies tend to focus on internal risks, but dependence on external vendors and suppliers is also a significant source of exposure. Supply chain delays and disruptions can seriously threaten your ability to conduct business by impacting production and distribution. The time it takes to find and onboard new suppliers can precipitously increase costs, while late orders and disappointed customers can reduce revenue and decrease market share. It can take years to recover from a supply chain failure.
So, how do you help ensure the resiliency of your supply chain?
Incorporate Supply Chain Resiliency in Your Business Continuity Plan
To help protect your organisation, you must first understand what makes it vulnerable. All organisations should have a formal, written business continuity plan (BCP) – a procedural document that lays out courses of action should a disaster strike, in order to minimise operational downtime and loss.
If your business relies on external vendors, be sure to identify potential supply chain risks as part of your BCP. This includes:
Assess Individual Supplier Risk
Each vendor or supplier will have its own sets of vulnerabilities, depending on many factors. For example, supplier facility construction type and emergency preparedness are important if it’s located in an area that’s prone to flooding or bushfires.
Based on known vulnerabilities, identify the types of events or hazards that are most likely to disrupt the supplier. Use tools such as a vendor/supplier questionnaire or checklist, as well as an on-site assessment of the company’s operations.
Ensure Vendor and Supplier BCP Compliance
Reliance on third parties requires diligent vetting, consistent management, and frequent review of your vendors.
Reduce Overall Supply Chain Vulnerabilities
During a supply chain failure, according to the Harvard Business Review, “companies that are better prepared to act quickly have a competitive advantage.” To mitigate exposures from disruptions before they happen:
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