The phrase "supply chain risk mitigation" is heard a lot these days. Another phrase—"supply chain disruption"—is also becoming increasingly common. The COVID-19 pandemic (hopefully nearing an end, or at least a more manageable level) has pushed both of these terms to the forefront in manufacturing businesses worldwide.
In fact, the terms have become frequently bandied about by consumers who, for the most part, didn't even know they existed before the pandemic. But now everyone is talking about pandemic supply chain risk because it’s impacted almost everyone. A colleague of mine related a story to me recently that illustrates this.
His son hired an automobile mechanic to replace the engine in his vehicle. The order was placed in late October of 2021. The estimated time for repair was 4-6 weeks.
The actual repair was completed in mid-March of 2022 after a “supply chain disruption” made it difficult to obtain all the necessary parts for the replacement.
Common Issues Impacting Supply Chain Risk
It doesn’t take a pandemic to cause supply chain disruption. Issues such as climate change, economic fluctuations, acts of terrorism, conflicts between countries, and even internal conflicts within a region have intensified the supply chain disruption conversation.
Although optimism began to flicker in Europe, the conflict in Ukraine dampened it to a degree. An article published in the Wall Street Journal's Economy section in March 2022 stated:
"Russia’s invasion of Ukraine has ended a monthslong rise in optimism among eurozone households and businesses, though both remain more upbeat than during the darkest months of the Covid-19 pandemic."
Disruptions happen, and the consequences can have a major impact on organizations. Truthfully, supply chains are nothing new. They have always been with us. Almost since the dawn of time, actually. But supply chain management is a relatively new discipline approximately 40 years in development.
Author of the 2021 book, Supply Chain Management for Dummies, Daniel Stanton, makes the case.
“In spite of the current hype, supply chains aren’t really that new. Entrepreneurs have been buying things from suppliers and selling products to customers for almost as long as people have inhabited the earth. However, supply chain management is new.”
How to Offset the Impact of Supply Chain Disruption: Develop Strategy
In today's manufacturing world, having a risk mitigation strategy is imperative because disruptions are inevitable. We must find a way to mitigate supply chain risk not just in this post-pandemic era, but also beyond.
That strategy begins with analyzing and perfecting current supply chain management systems. And that may involve considerations about how to manage it differently or, at the very least, more purposefully.
It’s an ongoing process. Your supply chain management system, including risk mitigation, will evolve.
Supply Chain Management and Risk Mitigation Don’t Exist in a Vacuum
There are many moving parts in supply chain management and risk mitigation, and many of them feed off one another. Unfortunately, some companies separate these parts into "silos," categorizing and compartmentalizing each into an autonomous department. In fact, some of them aren’t even recognized as part of the overall process.
But it's necessary to understand that each portion feeds off the others. And some may not even be recognized as part of the process.
Of course, we include inventory procurement. In the food and beverage industry, that means sourcing your ingredients. And although it has always been a good idea, finding alternate sources has recently proven to be a necessary component of procurement.
Assessing your inbound supply chain consists of five steps:
- Take inventory of your current suppliers, examining every aspect of their relationship with you.
- Assess the state of the global environment, both natural and man-made.
- Take social and economic conditions into consideration. This includes not only supply availability, but also the ability of the supplier to get products out the door despite social and economic disruption. According to an article, only 21 percent of supply chain leaders feel their network is highly resistant to global uncertainty.
- Qualify the risks and determine if they are worth dedicating valuable resources for mitigation. Focus on high-priority and imminent risks.
- Use data collection best practices, and then work as a team to analyze the results, often by using automation to speed up risk identification and decision-making.
Often, companies choose suppliers based on cost. The less expensive, the better. Better ROI, right? This has led some companies to target national vendors for certain ingredients and parts procurement.
But what happens when the well runs dry, so to speak?
Hopefully, you haven't alienated the alternate suppliers. In fact, to mitigate risk, it may be a good idea to source a portion of your inventory from these suppliers.
Think of it as an "insurance policy" against the loss of important sources. It may be slightly more expensive and could cut back on your revenue. But in the long run, it could literally save your bacon.
In fact, diversifying suppliers is number four in a list of 10 supply chain risk mitigation steps published by Inbound Logistics.
Production and Logistics
Production is another element to consider, and you likely do already. But in a minute, you'll see how other categories drive production and make operational excellence crucial for success.
Logistics and shipping are important. Remember, you are part of someone else's supply chain. Ensuring you have the resources to get your product to the customer should be a given.
Sales and Marketing
Do you consider sales and marketing as part of your supply chain management team? If not, perhaps you should. They don't just promote and sell your product. They have their fingers on the pulse of the market, are keenly aware of trends, and can lend insights into demand changes and fluctuation.
They also deal with your customers daily. They can predict what your demand—and thus your procurement needs—will be with a good degree of accuracy.
That leads to the next "group" of your supply chain management team—your customers.
Keep the lines of communication open to them at all times. Building a good relationship with them will not only let you forecast their future demands, but also drive another element—goodwill.
If you develop good communication with them, it can help when the inevitable supply chain disruption occurs. They will be more understanding if they know, like, and trust you. Don't play the shell game with them. Inform them of your current status—and particularly of any potential downtime—so they can adjust accordingly.
Overall, it’s crucial to include people both inside and outside your organization to build a more complete, comprehensive strategy for supply chain risk mitigation.
In all of this, you need to develop an ever-maturing process, often called a capability maturity model or CMM.
The integration of the right technologies enhances the process. Let's look briefly at the CMM definition and components.
What Is the Capability Maturity Model?
According to an article on TechTarget, the capability maturity model (CMM) in the realm of software development is:
"A methodology used to develop and refine an organization's software development process. The model describes a five-level evolutionary path of increasingly organized and systematically more mature processes."
When you're working on your own risk mitigation strategy, you'll find that using software in each The five levels outlined in the article are:
- The initial level, in which chaos reigns. Success may not be repeatable because it relies on individual effort, not team collaboration.
- The repeatable level, in which processes are established, defined, and—perhaps most importantly—documented.
- The defined level, in which documented best practices are studied thoroughly. This is followed by standardization and integration into all relevant parts of the process or system.
- The managed level, in which data collection and analysis are used to monitor and control process results.
- The optimizing level, in which the data collected and analysis performed is used to take the current process and create innovative additions that enhance the strategies under development.
Evolving technologies are at the heart of the Industrial Internet of Things (IIoT) and lean manufacturing in the era of Industry 4.0.
Using the most effective technologies for every step of the supply chain management process is vital as you develop your risk mitigation strategy. That includes everything from the boardroom door to the shop floor and beyond.
Monitoring Your Manufacturing Process Should Be Part of Your Strategy
The efficient operation of your processing equipment ensures you can handle both a fluctuating market and increased demand for your products. The move to a digitally enhanced process can be transformational if you follow a proven roadmap.
Having a fully developed digital strategy not only enhances your factory's performance, but also improves the relationship with the most important part of your supply chain management and risk mitigation strategy—your customer.
Efficient operation on the shop floor translates into increased value for your process ROI. That’s a given. But the gradual accumulation of positive process line improvements ultimately enhances your overall company profitability and competitive edge.
Our free E-book Guide to Improving Shop Floor Management with Smart Software explores the positive impact of digital transformation for your factory.
Here are just three of the key takeaways you’ll get from the guide:
- A set of digital transformation tools to improve shop floor performance
- A complete understanding of the OEE principles to implement at both departmental and plant-wide levels
- A better understanding of how shop floor improvements affect profits and EBITDA
This E-book will help you overcome marketplace competition challenges while allowing you to reduce costs and improve your vital customer service.