Do You Really Need a Supply Chain Risk Management Plan?
With the Coronavirus pandemic, we have had the opportunity to see the benefits of a strong supply chain and the vulnerabilities of a weak one. Never before have we needed our supply chains to run smoothly and perhaps never before have they been so tested. Even for companies with a supply chain risk management plan in place, few could have predicted the impact this virus would have.
Here are just a couple of the headlines that highlight the reason why a supply chain risk management plan is so critical:
“More than half of the country is in some form of lockdown…As well as causing disruptions in supply chains, the pandemic has shut down demand…” – Reuters
…the latest jump in the Supplier Deliveries Index, the biggest since 2005, reflects the virus outbreak that’s led to dysfunction in global supply lines…” – Bloomberg
While the pandemic may not have been on most radars, companies recognized early on that a nationwide or global pandemic could impact their supply chain included the scenario in their supply chain risk management plan. Their plan considered what it would take to their speed response if something like a virus were to sweep the globe. That’s what a supply chain risk management plan does – strategizes ways to mitigate risks that could come from anywhere, even a pandemic.
Take the Texas-based H-E-B grocery chain. As reported in Texas Monthly, the chain has had a virus pandemic on their radar since 2005 with the H5N1 outbreak in China. From that moment, the company developed its plan of how it would respond and what business implications they would need to consider, including modifying their supply chain. They’ve refined that plan over the years with other outbreaks and even hurricanes, something the Texas coast is quite familiar with. When COVID-19 hit the U.S. coast, H-E-B was able to put their plan into action and has been a shining star in how global supply chains can be optimized on a dime. Having its plan already in place enabled the company to quickly respond, adding new suppliers to its supply chain to fill the anticipated gaps.
H-E-B is just one example of why it is so critical for companies to be nimble. So many variables can play into the supply chain delivery model and in the case of the pandemic, being able to keep the supply chain running smoothly can be a matter of life and death. A single supply chain disruption can have significant implications.
H2: Building a Solid Supply Chain Risk Management Plan
If your company doesn’t already have a supply chain risk management plan, now is better than never. And if your company does have one, it’s a good time to pull it out and thoroughly review it to include any lessons learned since it was created. It’s worth the time to get a good one in place, one that brings peace of mind by considering all of the risks, scenarios, and viable responses.
Step 1: Consider Your Risks
You can’t plan for what you can’t see…or can you? When it comes to the supply chain, much of the inherent risks are unseen: global economic volatility; undisclosed partner/supplier financial issues; future weather, climate events, and natural disaster issues; and yes, pandemics. Every one of these and plenty more may be invisible now and, therefore, unpredictable, but they most definitely can cause delays, higher costs, and decreased sales and customer satisfaction. Learn from the past, look at what’s happening in the present, and predict what may come in the future.
Lessons learned from COVID-19 may last for months or even years, but we can also look to the past to see other issues that historically impacted the supply chain.
The government shutdown in 2013 may have only lasted 16 days (a relatively short time compared with the COVID-19 global shutdown), but its impact was felt up and down supply chains. The Institute for Supply Management conducted a study during this time and found 52 percent of respondents said their firm’s performance was impaired by the government shutdown. Most also said that the majority of those that activated their risk management plan missed minor risks, such as delays in government inspections. We can only assume these seemingly minor risks have all been added to those plans as potential risk factors.
With lessons learned from past events and a keen eye on current issues, assessing future risk is the most challenging. Seeing into the future isn’t easy, but it does require creativity and attention to details, such as the location of the company, its suppliers, distributors, manufacturers, and retailers. A hurricane, for instance, is always a possibility if any of these stakeholders are located on the Gulf Coast or the Atlantic Coast, but not so much in Montana. That leads us to the next step because not all risks are equal.
Step 2: Score Your Risks
It’s important to know your risks but also how likely each risk is per location or lane and what the impact of that risk would be on the supply chain. For this reason, scoring risks is an effective way to get quick visibility into what risks deserve the most attention. These risk scores can be numbers, colors, or any other graphical representation of how each risk compares to other risks in the supply chain so the right ones are prioritized at the right time.
Step 3: Build Contingencies
Companies want to be nimble. They want to respond quickly so as to reduce delays, interruptions, and long-term damage. Unfortunately, many companies have weak contingency plans because they didn’t take the time to dig into the response plans per risk factor. It may feel labor-intensive to go through every potential scenario and list out all of the “what ifs” and follow them up with the “then this,” but it’s the most effective way to ensure everyone knows how to respond if the future predictions come to pass. This type of modeling gives companies a head start so they can quickly pivot when the situation arises. It may not happen exactly as planned for, but just by considering options ahead of time, you’ll be in a better position if and when the event looks possible.
Step 4: Develop Your Plan
Your plan should be detailed and consider all of the information you’ve collected so far through previous steps. Your plan won’t look like other companies’ plans because your company operates uniquely from the inside out. You have different suppliers and other stakeholders in your supply chain, different customers, and different shareholders with different expectations. There are, however, five basic components The Institute for Supply Management says are likely to be included in a risk management plan:
- Find alternate suppliers
- Talks with critical suppliers
- Qualifying more suppliers
- Buying extra supplies
- Talks with major suppliers
How often should you review your plan to make sure it’s still relevant? It depends on if your plan had the intended effect of mitigating your risks or failed in an area that mattered. The Institute found that the vast majority of firms (83%) update their plans on an as-needed basis unless they had been negatively impacted by an event. In those situations, companies most commonly update their risk management plans within six months of the event.
Don’t Forget Logistics
Logistics is really the backbone of the supply chain. Only if parts or goods can get from supplier to manufacturer to partner to customer, for instance, will the supply chain work. While logistics is a critical element to the supply chain, it’s burdened with all kinds of risks, many of which are unpredictable. Again, weather, climate, and natural disasters are just a few. There are also infrastructure outages and social hazards to consider. Companies must analyze risk in the context of specific transportation modes and routes to ensure they have mitigation plans in effect.
It’s not enough to guess and manually collect weather data along every mile of the planned route for every shipment is not sustainable. Logistics risk management planning should follow the same steps as above, beginning with assessing and scoring risks before a plan is made. Here’s where technology can really help.
Technology can do what human resources can’t or don’t have the time to do: gathering large amounts of data from internal and external sources in real-time. Intelligent technology goes even further to analyze the data automatically to make the data actionable in a graphical way so decisions can be made faster, even 10 days prior to an anticipated event. Even more, today’s technology is capable of crunching the data for you to offer up recommendations on how to best mitigate the risks deemed most pressing. Business leaders can look at their dashboards to see risk scores, graphs and charts, and prioritized next-best-steps.
Timing is everything in logistics. Having such intelligent analytics at your fingertips gives you time to consider your risk management plan and determine if the plan will work or if it needs modification. Each scenario is backed with data, eliminating the need to guess or make assumptions. Because your data is accurate and in real-time, you have confidence your decisions are sound. If mitigation efforts still can’t prevent any delay in your supply chain, you can set the right expectations with partners and customers, even sharing your data to justify the delay.
There are so many lessons that will be learned from COVID-19. The importance of the supply chain and the need to protect it has to be towards the top of the list. We can hope we won’t face another similar pandemic, but now we know it’s possible and what havoc it can have on the supply chain and our world.
Companies must have access to data inside and outside of their four walls. While all risks can’t be completely avoided, the majority can be mitigated if the right data is in hand and smartly utilized. A dependable supply chain risk management plan that is empowered with intelligent technology will give companies the best opportunity to maintain their supply chains despite the risks and even come out on top because of their quick response.