How Supply Chain helps mitigate business risk
Filed Under Blog
All organizations face risks, they can come in various shapes and sizes and can impact the business in a variety of ways with various degrees of severity. Against these risks, most businesses will employ some method of risk control to devise mitigation activity, where required, and appoint owners whose roles it will be to co-ordinate the risk reduction activity.
Supply Chain can both be a key contributor and mitigator for business risk. Supply Chain will typically control the flow of materials both into and within an organization. Where severe problems occur an organization can be quickly bought to its knees.
Consider the impact of a supplier going bankrupt and unable to supply goods – those goods might be crucial to the assembly of a particular product with the result a stop in production, while an alternative supplier is sourced. This could result in an unhappy customer, potential lost sales and serious financial impact.
Common Business Risks
There are thousands of risks that a business could face. However supply chain risks tend to fall into a number of categories.
Risk of Interruption of manufacture/production
The supply chain community can do much to support the business in mitigating this risk. Continuity of supply is perhaps the key benefit to an efficient and targeted supply chain team.
Commercial Risk
Inadequate contracts with suppliers can leave organizations exposed – this is especially true where contract terms from customers are not flowed down within supplier contracts. In the event of customer commercial terms being envoked this can leave organizations with heavy penalties without recourse onto it’s supply partners.
Business Continuity
Business disruption, loss of facilities or key machinery can cause significant disruption – while supply chain is not typically the owner of business continuity planning it does provide important information for key suppliers to be used and key equipment that may need replacing in the occurrence of an event.
Risk of cost escalation
Significant cost escalation can affect competiveness and bottom line financials. Managing costs is a very common supply chain task with supply chain departments (in particular procurement) getting closely involved in cost reduction programs.
Types of supply chain risk mitigation
As with any risk management process – mitigation is a key step – there are various fundamental supply chain functions that have a by-product of risk avoidance.
• Stock Management
• Sourcing arrangements
• Supplier relationship management
• Obsolescence Management
• Supplier rationalization programs
• Contingency planning