Supply chain complexity and uncertainty are here to stay. To put this another way, supply chain risks are on the rise. And they show no signs of abating.
Supply chain disruption abounds. You have increasing conflict, changing customer requirements, increasing regulation, trade wars, and Black Swan events, to name a few.
With increased risks come increased costs to supply chains. Survival and competitive advantage are at stake. So business are now looking at how to manage supply chain risks.
SCRM is a relatively new and emerging field. It’s part of a larger, more familiar field, risk management. To survive and compete, you must build SCRM into your strategic business plans.
This post addresses what how supply chain risk management can help you to survive and compete in today’s uncertain and complex environment.
We’ll look at the new, strategic nature of SCRM, operational risks and how to prepare for them.
HOW STRATEGIC SCRM CAN HELP YOU
You also have human error, planning product failure, equipment failure, organizational management strategy. (Schlegel & Trent, p. 135.)
Environmental risk includes currency exchange rates, political environment, customs regulation, weather/acts of God, environmental, industry, and country regulations, fraud, corruption, counterfeiting and competition. (Schlegel & Trent, p. 138.)
That’s quite a list. As you can see operational risks make up the largest component of risk. And they fall into either known or unknown risks. The known you can plan for, which means you can prevent or avoid them.
Whereas unknown risks lend themselves to mitigation rather than prevention or avoidance. But you can address these risks with business continuity planning. So some responses to risks are reactive while others are proactive.
SCRM: RISK vs. OPPORTUNITY
SCRM not only manages risk, it also offers opportunities. This is where it pays to spend some time. You should focus on creating a viable business continuity plan (BCP). Additionally, you should focus on proactive approaches geared towards gaining competitive advantage.
To create a viable SCRM plan that addresses operational risks, you should view risk in terms of time. You have near-term (0 – 45 days) and mid-term (1-8 months). Approaching SCRM planning in this way helps you organize relevant responses.
BCPs ensure you don’t skip a beat. Depending on the severity of the disruption, BCPs address availability, reliability recoverability of your business processes.
In some instances operations will continue in the face of a disruptive event. In others, they will suffer a short disruption before operations resume. Your planning for disruptive events will reveal opportunities you can leverage to gain competitive advantage.
A stark example reveals how to turn risk in to opportunity. This example addresses sourcing. Nokia and Ericson were both supplied by a sole source in New Mexico. The electronics supplier’s warehouse burned down resulting in a catastrophic supply failure.
Nokia had a BCP that allowed it to pivot and secure other electronics suppliers. It sustained some losses but mitigated them. However, it was also able to turn that risk in to an opportunity and gain competitive advantage.
Unlike Nokia, Ericsson was caught flat-footed. As a result, it lost hundreds of millions of dollars in sales as well as market share in the wireless phone business.
SCRM SHIELDS YOU FROM EMERGING RISKS
Likewise, supply chain risks have risen and so have their costs.
Operating in today’s world is riskier than ever before. Supply chains are all about planning and execution. Planning addresses execution and its attendant risks. Execution, meanwhile, depends on detailed, in-depth planning.
To start with, you should approach risk from a strategic view. Namely, you should look at the operating landscape. That landscape is dynamic, operating 24 x7, 365 days a year. It’s marked by growth and innovation, thanks to globalization.
It’s grown more complex with a focus on attaining better, faster, and cheaper results. Add to that changing technologies, customer requirements, and regulations. You begin to see how the operating landscape is layered with increasing complexity.
Addressing these factors in isolation or at a tactical level sub-optimizes your SCRM. Instead, you must look at the big picture. By taking a holistic view, you can see the relationships among these factors.
This gives you insight into how these individual parts fit. It also helps identify their associated risks. From there you can assess how changes to the individual parts affect the whole.
You can assess how changes impact your competitiveness within your industry. You can see how changes affect revenues, execution, your brand and customer satisfaction.
This strategic view helps you create a SCRM road map. You’ll have a high-level view of your risks. You also, have a rough outline of potential responses. You’ll see where a reactive approach works best and where a proactive approach is more appropriate.
Next, we’ll drill down into operational risks.
TYPES of OPERATIONAL RISKS YOU MUST CONQUER
Operational risks consist of daily risks that impede smooth operations. Operational risks encompass supply risk, demand risk, process risk and environmental risk. (Supply Chain Risk Management, Schlegel & Trent p. 127).
This is where plans come together or not. It’s the daily grind if you will. Let’s examine the types of operational risks.
Supply risk includes supplier lead times, supplier quality, transportation lead time, supplier pricing, labor issues, disasters, import delays fraud, counterfeit material and supplier delivery. (Schlegel & Trent, p. 129.)
Demand risk includes forecast error, time delays, outbound transit times, customer pricing,customer promotions, customer bankruptcy, product failure, warranty issues, customer loss, new product introduction, fraud, and corruption. (Schlegel & Trent, p. 132.)
Process risk includes manufacturing yield, capacity, information delays, time delays, disruption (labor issues, acts of God), systems, receivables, payables, inventory, and intellectual property.
So, it’s not surprising supply chains have grown in strategic importance.
Business leaders want to do more than reduce their exposure to risk. They now view SCRM in light of competitive advantage as well as its defensive attributes.
In today’s world of the New Normal, competitive advantage and survival go hand-in-hand. Therefore, you must have reactive and proactive approaches in place.
SCRM can ensure your business is ready for whatever challenges it might face. Leading edge businesses plan for the expected and the unexpected.
It doesn’t matter whether you’re facing with weather, operational, or financial risks. You’ll be able to mitigate, prevent, or avoid those risks.
And you’ll be able to take advantage of situations for which the competition has failed to plan. Having a SCRM plan may be a game-changer.
Are you unsure of how to limit your exposure to supply chain risk? Or are you unsure of where to start?
Our logistics solutions won’t leave you unprotected.
At American Global Logistics, we’ll help you limit your exposure to risk. We’ll also work with you, so you know where to start.
Contact us to find out how to turn SCRM into a strategic asset. We can help you prepare for supply chain disruptions and gain competitive advantage.