Put together a risk mitigation plan to avoid the types of risk with the greatest potential impact on your organization.
Operating in today’s global economy can wreak havoc with your supply chain. If you can identify the major risks and come up with mitigation strategies, you should be able to navigate your way through things successfully. Sounds good, but the problem is that with there being so many types of risk, how do you identify and plan for them all with your limited resources?
First, you need to consider that supply chain risk can come in many forms, including disruption, delays, forecasts, inventory, procurement, transportation, systems, and so on. Then you need to assign the likelihood of them occurring and the potential impact they will have on your organization as any and all forms of risk can lead to waste in your supply chain in terms of excess cost, shrinking revenue and profits, and poor customer service. Finally, you need to put together a risk mitigation plan to avoid the types of risk with the greatest potential impact on your organization.
So it’s not so surprising that a recent Aberdeen Group study, Supply Chain Risk Management: Building a Resilient Global Supply Chain, found that “Best-in-Class firms have adopted a more holistic view of supply chain risks compared to lower-performing peers and have made more progress in improving their supply chain processes and infrastructure in order to be better positioned to foresee, spot and respond to potential disruptions.”
Best-in-Class companies are more likely to manage or at least assess the following risks:
• Logistics congestion and capacity—43% more likely.
• Risk profile of suppliers—44% more likely.
• Fuel price risk—46% more likely.
• Risk profile of a country—36% more likely.
• Non-environmental catastrophic events—28% more likely.
• Best-in-Class companies are also more likely to have a more structured approach to analyzing their risk exposure.
The results of the study suggest that the supply chain risk management “laggard” companies should at least begin thinking about supply chain risks, evaluate their current supply chain infrastructure, make their staff aware about the dangers of supply chain disruptions, and train them on correct response procedures.
For the “average companies” when it comes to supply chain risk management, the Aberdeen study recommended they adopt a “proactive visibility” capability, start to assess and manage more supply chain risks, rate supplier performance at least monthly, and collaborate with supply chain partners.
So the moral of the story here is if you haven’t yet at least started putting a plan together in this regard, you are doing so at your own risk (pun intended).