Published Monday 21st December 2020
Changes in supply chain processes are inevitable after many businesses have become painfully aware of how multi-tier supply chains can lack resilience.
Following the need for more immediate adaptions during the COVID-19 disruptions, risk assessment, and a long-term change in processes are among the most important considerations for companies that hope to survive and learn from the pandemic. Without a change in outlook or willingness to adapt, businesses will remain vulnerable and prone to weaknesses.
As experts in cost optimisation, here at Expense Reduction Analysts, we continue to support businesses through these difficult times by helping them develop effective plans to reduce operational and packaging costs.
Here, we discuss how modern supply chain processes can be adapted and developed with resilience and rigorous risk management in mind. How can a new approach protect supply chains against both known and unknown risks?
Supply Chain Diversity
One key supply chain weakness exposed right at the start of the pandemic was the over-reliance on global supply chains. Many are now looking towards the reduction of reliance on manufacturers in China as a single source. The ‘China plus one’ strategy is becoming increasingly popular as firms are reluctant to move away from the low-cost, large labour force provided by China, but are still aware of the need to alter processes in the name of risk management.
Supply chain diversification could play a vital role in ensuring that operations do not halt completely when future, unavoidable delays occur.
However, when operations are spread across multiple suppliers and countries, transparency is often comprised. Businesses must evaluate the associated risks of many sub-suppliers, and must understand the risks posed by existing or potential suppliers.
Government Regulations
Trade friction with other countries also had a role in forcing supply chain diversification. As the U.S. and U.K. impose sanctions on China, firms are restricted in the business they can do with certain other countries and must establish new networks.
Assess Risks of all Supply Chains
Assessing risks beyond those posited by primary suppliers is something that many businesses struggle to do. Moving forward, processes should be adjusted to facilitate the ability to mitigate harm across as many suppliers as possible.
Managing Known Risks
Before attempting to project the possibilities of future risks, it is essential to start with known risks that can be managed over time.
Organisations should develop robust risk management frameworks in order to establish the appropriate metrics that will be measured. This will help firms ask and answer questions about what level of risk is acceptable and where certain areas can be improved to be in line with the established metrics.
Each individual element along the supply chain should be mapped out, from key suppliers to warehouses and delivery networks. The risks for each element can then be more effectively measured and tracked. This process will also highlight any areas of the supply chain where visibility is limited; the associated risks here can then be established.
To help manage the known supply chain risks, organisations should aim to embrace and strengthen these steps:
· Identify risks
· Establish a supply chain risk management framework
· Monitor risks
· Govern and review risks
Anticipate Unknown Risks
Predicting unknown risks with absolute accuracy is impossible but determining how supply chain management can make room for new anticipatory processes is important.
When dealing with unknown risks, focus should be placed on response times and the ability to retain a competitive edge. Establishing strong lines of defence and a culture of risk awareness will be essential if companies want to develop new processes that protect themselves.
Risk tolerance must be clearly established, with all employees being aware of when to alert leaders to potential threats.
Approaches to Risk Reduction
Businesses must take active approaches to risk management by investing in new areas and accelerating changes that need to take place. The following measures are some of the things that businesses have already been adopting to help reduce current or future threats.
Taking Advantage of Digital Technologies
Automation and digitisation were already part of an emerging trend towards more effective management and operations before the pandemic, but the struggles engendered by the COVID restrictions have only accelerated the need to embrace innovation and technology, along with companies’ willingness to invest in these areas.
More businesses are beginning to take advantage of digital tools to predict and analyse supplier risks. Digital tools have the ability to give more accurate, frequent, and in-depth data in real-time.
New simulation software can also help illustrate the entire supply chain and highlight areas where risks are more likely or threats that could arise if precautions are not taken.
Building Inventory Stocks
Another thing for companies to consider is the benefits of building up an inventory of surplus stock or raw materials to protect against disruptions in the future.
This kind of measure will, of course, come with the associated risks of obsolete stock and further loss of revenue, but this potential risk must be measured against the catastrophic losses during long periods of limited operation and high demand.
Simplifying Manufacturing by Prioritising Certain Products
Manufacturing processes can be simplified by focusing on the most important products that are in frequent high demand. This can be implemented when limited employees are able to work, and factory output for certain products needs to remain consistent.
Moving Forward
Building new processes to assess and mitigate supply chain risks spans beyond establishing a more expansive approach to risk reduction, although this too is crucial.
There must also be a shift in mindset and culture. Only when all parties are aware of the threats and are transparent in all areas, can risks be effectively managed and measured.
To find out more about how Expense Reduction Analysts could help your business optimise cost management, get in touch with our team of industry professionals today.