Risk management in supply chains: What you need to know to protect your inventory
There’s no getting around risk. It’s nothing new in global supply chains, and only getting more complex and harder to predict.
Today’s supply chains are particularly vulnerable to labor strikes, port congestion, geopolitical disruption, and supplier delays or bankruptcy – many of which are becoming more common. That creates enormous potential for destabilization, and makes risk management an absolute necessity.
A big part of the supply chain risk management challenge boils down to the presence of a wide range of actors needing to work in concert to effectively mitigate risks.
When something goes wrong, there’s often a chain reaction where disruption at one point leads to knock-on impacts at all the stages that follow.
Without quick and effective collaboration, it can be difficult, if not impossible, for partners at those later stages to know what’s happened and take the necessary action.
That’s why mitigation is the magic word in supply chain risk management. Anything that you can do to limit the consequences of a risk event is essential.
In supply chain risk management, visibility is control
If you want to control your supply chain and manage risk, then the first and most important thing you’ll need is supply chain visibility.
Supply chain visibility is an organization’s ability to see and understand the movement of goods and materials from place to place – and then share or analyze that data to gain a deeper understanding of supply chain performance and pinpoint problem areas.
Without a good visibility infrastructure, risk management is challenging because you won’t have the data or analytics to understand the persistent sources of risk or measure the impact of changes.
However, gaining this high level of visibility is difficult for businesses that lack the appropriate tools and processes.
Modern supply chains are complex, with multiple layers and countless partners involved. Relying on basic tools like carrier tracking portals might provide some of the data you need, but they’re not catch-all solutions.
You won’t be able to see all of your shipments in one place, and even if you do move the data into a centralized spreadsheet, there’s no easy way to keep it up to date without heavy manual processes.
Plus, these systems don’t allow you to share information across the supply chain, which is one of the key ways to reduce chain reaction impacts by ensuring partners and stakeholders are aware of issues and can react quickly and effectively.
Luckily, technology has opened the door to new, powerful visibility solutions that help mitigate risk.
For many businesses, the first step in risk reduction is to boost inventory levels.
This might insulate you from some of the consequences of supply chain disruption, but it’s far from a truly effective solution. Inventory is expensive.
It ties up a significant portion of your cash flow, can come with excessive carrying costs, and simply isn’t scalable as a long-term solution.
A more sustainable approach involves using supply chain visibility tools (like Beacon), to get a clear and deep understanding of your supply chain.
Having all your data in one place will make it easy to illuminate key drivers of risk and implement risk controls in steps 2 and 3.
Step 2: Identify your critical risk areas
A supply chain visibility tool with dedicated reporting features will give you detailed breakdowns of how your supply chain is performing across carriers, ports, routes, and other dimensions with all of that data held in one place for easy oversight.
With a single source of truth like Beacon, it’s far easier to determine which specific routes, ports, carriers, and even times of the year come with a higher chance of disruption.
For example, if there’s a particular route or carrier that’s consistently causing delays to your shipments (or to others), then you can start looking into alternatives or adjust lead times to better reflect reality.
Step 3: Build a supply chain risk management framework
Once you have better visibility into your supply chain and a clear breakdown of the risks that could disrupt it, you can start mapping them into a comprehensive risk management framework.
This might start as a list of areas with enhanced risk, broken down by the part of the supply chain they affect, as shown in the example from McKinsey & Company below.
This is a very detailed example and incorporates additional risks that may or may not be relevant to you. But the more you can identify and prepare for, the better you’ll be able to respond in the future.
Once you have a risk register, you can flesh it out with mitigation strategies to minimize each risk and a set of steps to take if they become a reality.
The more detailed this information is, the better (and faster) you’ll be able to respond – limiting exposure and reducing the potential impact on your business.
You should also share this information with your supply chain partners, so that they can take similar steps to strengthen operations from end to end.
See your risks to manage your risks
Ultimately, risk management in supply chains comes down to visibility.
You can't mitigate the impact of risks without knowing what they are, and intelligent visibility tools like Beacon provide single-source-of-truth data that you can rely on to prepare for the worst.
Even if you already have a risk register in place, better visibility will allow you to sharpen it – giving a deeper insight into your risk factors, and making it easier to track changes in exposure over time.
So get in touch with us today to find out more about Beacon, and how its visibility tools can help you stay safe in a high-risk world.