New Ways to Reduce Supply Chain Risk

“The future of business will belong to those companies that not only embrace risk but also understand how to anticipate and prepare for risk.” (Schlegel and Trent, Supply chain Risk Management, p. 283)

Recent events have transformed the approach to supply chain risk management. Trade wars, Covid-19, cyber attacks, and natural disasters have shed light on global supply chains.

These have elevated the importance of supply chain risk management. In turn, these events have exposed the weaknesses of our supply chains.

Lessons learned are transforming ways to reduce supply chain risks.

Today’s supply chains aren’t fit for their purpose. They’re rigid, brittle, and fragile. These traits promote volatility and uncertainty. That makes operating in an increasingly unstable environment untenable.

Instead supply chains need to be agile, resilient, and durable. Supply chains must be able to sense and respond to disruptive events — known and unknown. Even better, supply chains should focus on predicting and preventing disruptive events.

Prediction and prevention of supply chain risks represents the new focus. Let’s explore some of the new ways supply chain risk management is changing.

As Rahm Emmanuel once said: “ You never want a serious crisis to go to waste.” What he meant by that is that crises give you an opportunity to change.

Below are new ways SCRM is changing. These are a few ways you can put lessons learned to work to transform your SCRM.

New Attitudes Toward Risk Are Changing Quickly

Starting off with Rahm Emmanuel’s quote, businesses are beginning to look at the flip side of crises. They are looking for opportunity that comes from a crisis. Companies with changing attitudes will find that embracing risk will lead to new ways of doing business. It will promote innovation.

Businesses now see the folly of maintaining the status quo. Operating on the legacy model of stable and predictable business environment is risky. Digitization and integration of supply chains is the wave of the future. (See report by the World Economic Forum.)

Now businesses are looking at how to function in times of volatility and uncertainty. Legacy supply chains are clearly in transition. Supply chain transition in thought and in deed is becoming the new status quo – or the New Normal.  (See this article at Fortune.)

The shift in attitudes toward embracing risks reflects a momentous change in SCRM. Prodded by disruption, it represents a paradigm shift in the making. Its end state will likely result in reduced supply chain risk.

Leading Edge Businesses Are Fusing Risk Management and SCRM

Traditionally, risk management and SCRM were separate and distinct. However, faced with a future of increasing risk, it makes sense to fuse risk management and SCRM. Just as boundaries between functional silos are falling, boundaries between risk management and SCRM are also falling.

That’s taking a holistic and integrated approach to risk. Moreover, this raises the level of SCRM to the strategic planning level.

That means you should consider risk upfront. You should think about how your supply chain can best support your business. It’s the difference between taking a proactive versus a reactive approach.

Fusing risk management and supply chain management means considering risks early in the planning process. It means taking due diligence in thinking about how best to support a product or service. It also includes considering prediction and prevention of risk (discussed in more detail below).

The catalysts for this business change stem from an increasing risk environment and from new capabilities enabled by emerging technology. Soon we will see supply chain managers become risk managers.

SCRM Will Extend Beyond Tier 1 Suppliers

Supply chain management has been evolving. As supply chains globalized, companies began checking the soundness of their Tier 1 suppliers. They looked for reliability, security, and safety. Now the spate of natural disasters of late has hastened the qualification of suppliers below Tier 1.

Now it is not unusual to verify the qualifications of suppliers below the Tier 1 level. Some companies are mapping their supply chains down to the lowest level supplier. It makes smart business sense to do so. In volatile and uncertain times, it may mean the difference between survival and extinction.

Mapping supply chains to the lowest level ensures partners maintain quality and reliability all along the supply chain. It prevents violation of laws, regulations, and policies on child labor, working conditions, and working hours, to name a few. It also helps ensure quality of manufacturing and services down to the lowest level.

Mapping also helps companies view their sourcing profile. It will reveal whether sources are too concentrated in one country or region. This allows you to make informed decisions about spreading out your risks.

Extending SCRM beyond Tier 1 suppliers improves data transparency and supply chain visibility. More importantly, it will improve operational performance.

Prediction and Prevention are the New Way to Approach SCRM

If there’s one principle that characterizes the changes, we’re seeing in SCRM it’s this one.  Prediction and prevention embody the other changes discussed above.

To survive and prosper, your business must be able to continue operations unabated. Your business must be able to handle volatility and uncertainty without blinking.

Technology will play key a role in aiding you in anticipating events. For example, Big Data and analytics will address the need to predict and prevent supply chain risks. Using previously unseen patterns in data, you can foresee risk events. This will enable you to identify risks before they occur or before they spiral out of control.

To leverage advancements made in Big Data and analytics, you must shift your focus to real-time predicative indicators. That means reliance on scorecards and dashboards will change.

As you’re aware, many of their metrics are historical, making them backward looking.

The shift to real-time data will help you “see” issues before they become problems. SCRM will give purpose to Big data and analytics further facilitating the drive to risk prevention and prediction.

Remember this… “Don’t Waste a Crisis”

Since January 1, 2020, once businesses and their crises wrack their supply chains. As a result, everyone along the supply chain has had to adapt. The alternative is to suffer devastating consequences. That includes everyone from manufacturers to retailers to 3PLs.

We learned our supply chains weren’t as responsive as we thought. That’s’ your opportunity. Your business must change its approach to SCRM – if you want your business to survive.

Tomorrow’s supply chains will rise to the strategic level of planning. They will fuse risk management and SCRM. Finally, SCRM will take a proactive approach. These changes will help reduce volatility and uncertainty.

Supply chains are in transition.  Don’t get left behind. Where there’s crisis, there’s opportunity.

At American Global Logistics, we’re known for working closely with our customers. We take the time to understand your needs and challenges. That means we help identify potential risks as we customize solutions to meet your needs.

To find out more about how we can help you predict and prevent risks to your supply chain, contact us by filling out this simple form here.