How To Manage the 3 Major Supply Chain Risks
"When will the COVID-19 pandemic finally end?" Many business owners are asking themselves that question. Unfortunately, the answer is not yet clear, and business owners must remain vigilant to the threats to their industry. For many, this means managing the internal and external risks is a top priority.
Supply chain risks occur when the raw materials your business relies on are not delivered on time or at all. These risks fall into three main categories:
- Shortages. At the beginning of the pandemic, it was consumer goods such as toilet paper that were in short supply. Now, many commodities, including steel, microchips, copper, coffee and school supplies, are facing supply issues. In addition to delaying production, these shortages are increasing prices, raising inflation fears. All businesses are affected, but businesses whose clients are price sensitive are especially concerned with how these issues will impact pricing and affect sales and profits.
- Transportation issues. Problems with transportation, including a shortage of truckers, shipping schedules affected by COVID-19 and quarantined inventory, impact the delivery of goods. These are the top challenges for risk management. At a time when having the right inventory on hand when it is needed is so critical for businesses trying to recover from the pandemic's lockdowns and restrictions, good transportation planning is critical to dependable delivery.
- Environmental risks. Environmental risks include the socioeconomic, political, governmental and environmental issues that can affect every aspect of the supply chain. These risks include everything from accidents such as the March 2021 Ever Given disaster to the fires plaguing the western United States to continuing COVID-19 quarantines worldwide.
End-to-end supply chain risk management is the process of strategically identifying, assessing and mitigating the risks in a supply chain. Here are some of the key components end-to-end management relies on:
Cybersecurity. Reliance on the cloud, artificial intelligence and the internet of things leaves businesses vulnerable to cybersecurity threats, including malware, ransomware, phishing and hacking. Businesses can reduce their exposure to these risks by implementing strong internal and external controls, such as these:
- Create a dashboard for company leaders that allows them to monitor the supply chain in real time so they can anticipate and alleviate issues as they arise.
- Be sure the company's anti-virus, anti-spyware and firewall software are updated regularly.
- Implement strong internal controls, such as putting companywide security protocols in place, and train the entire workforce to use them, tying access to systems and programs to job function.
- Ensure all outside vendors have strong controls in place to minimize the risk of the company's information being exposed.
Supply chain resiliency. The COVID-19 pandemic did not cause vulnerabilities in the supply chain, but it exposed them. As a result, business leaders are recognizing the need for built-in resiliency and agility through tactics such as multi-sourcing and nearshoring. Other tactics include adjusting inventory for peak sales periods such as Christmas as well as for potential seasonal disruptions due to weather.
Technology. Invest in the right technology. Using one software for the same or similar functions throughout the company maximizes efficiency and provides an added layer of resilience. By assessing how the company is using its software, supply chain managers can work toward the goal of keeping all of the company's data in one centralized repository.
Testing. Periodically stress test the entire supply chain network. This allows you to uncover potential vulnerabilities before they cause any problems.
Disaster recovery and business continuity. Work across the supply chain to put a disaster recovery plan in place to help ensure business continuity in the event of a supply chain disruption.
Communication. As with most business functions, good communication is key. Have a communication plan in place the allows the company to alert its customers to delays in a timely manner.