What is Supply Chain Risk? 4 Ways To Make Yours Resilient.
Fall means great weather and college football for a lot of red-blooded Americans. There are 2 consistent things with college football:
- Louisville is consistently underrated
- The offensive line will always be blamed for mistakes on offense, but never given praise
Supply Chain management is similar to the offensive line. Most executives don’t pay attention to it until something goes wrong.
You cannot de-risk an entire supply-chain. There is weather risk, geopolitical risk, and human error. However, you can take a pro-active approach to outlining and identifying risk along your supply-chain to make it more resilient and avoid being the next example of a supply chain failure.
At Accuserv we have identified 4 primary types of supply chain risk and how you can make yours more resilient.
The largest supply chain risk with the biggest economic impact to your business is price risk. There are two fundamental factors that must be addressed with accessing price risk:
- Price Volatility
One way to reduce price volatility is to consolidate your purchasing and transportation with a procurement company. The third-party company typically has greater purchasing power than a stand-along company and greater resources to maximize satisfaction.
Inflation risk can be mitigated traditionally with longer term contracts. However, the problem with this is that it exposes your company to a long-term liability. Additionally, if there is ever deflation your company does not get to participate in the effects of lower prices. Currently, this is a major issue for airlines as the price of oil has fallen dramatically. However, some companies have long-term contracts and have not benefited from the lower oil prices.
When conducting procurement throughout several countries you expose your organizations to more legal risk than most people realize. For instance, according the UK Bribery Act, a supplier who has committed corruption can indemnify it’s own customers to a huge penalty.
Proper contract management is only part of the solution when identifying legal risks. Training suppliers and customers to be aware of the law and having a zero tolerance attitude to illegal activities is the only way to manage this risk.
There are three principal types of delivery risk:
- Late delivery
- Early delivery
I learned early in my career to always schedule everything at least 1 day before you need it. In the military we actually ordered everything 1 week before we needed it. However, this type of scheduling can constrict cash-flow and is directly opposite of the just-in-time manufacturing that is popular now within the manufacturing industry.
Consistently evaluate your logistics and transportation companies for quality control. Specifically, what percentage of the time do they deliver on-time?
Whenever you have a company that is sourcing from several different vendors along several different geographies you are going to have significant quality risks. Is the package going to be damaged in delivery? Will the product be exposed to too much humidity?
Most organizations assign quality control to procurement managers. However, quality control must involve the entire organization. The best system that addresses this is the Six Sigma quality assurance process. Not only does this process reduce human error it also automates quality control.
Hopefully this article can be passed around your organization to stimulate some conversation around de-risking your supply chain.
If you would like to talk with someone at Accuserv about ways to de-risk your supply chain and increasing cash-flow and turnaround times please contact us using the form below, or feel free to give us a shout at 877.707.7378.
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