We often discuss supply chain risk, generally looking downstream to see how those risks might impact your ability to deliver to your customers. But equally important is to be able to understand the upstream risks that impact your ability to get your product out the door on time and in full (OTIF). What happens with upstream suppliers directly affects what flows downstream to you and eventually, your customers.
When your suppliers are unable to ship to you, perhaps because of weather events or infrastructure issues, the supply chain comes to a screeching halt. That is unless you can prepare ahead of time.
Take Control of Your Own Risk Assessment
Environmental events at the supplier’s distribution center or manufacturing location are just one risk factor in the supply chain. It’s easy to place the blame on the supplier just up stream from you, but what if their suppliers are having issues delivering input materials on time? Now, your supplier is unable to follow through, you can’t do anything and whoever is counting on your delivery is out of luck.
Proper supply chain risk management can involve dozens, if not thousands, of suppliers. In fact, Forbes reports for global brands it is not uncommon for the number of suppliers to be in the tens of thousands. One kink in the supply chain can have ripple effects that are hard to predict and even harder to mitigate, particularly if they aren’t anticipated. Unfortunately, not all suppliers are good communicators. They don’t always disclose an issue that could impact your business. Perhaps they’re hoping they can resolve it before it causes a problem, or maybe they don’t have the systems in place to notify every customer of issues in a timely manner. Whatever the case, companies must be proactive in assessing potential supplier risks on their own.
Supplier Risk Management Requires Transparency and Insight
How much transparency and insight do you have into your upstream suppliers’ performance? Are you relying on the supplier to keep you informed? In order to improve supplier risk management, companies must have 360-degree vision. Supply & Demand Chain Executives recommend the following four steps to manage risk throughout the lifecycle of a supplier:
- Certify suppliers
- Monitor external and internal risk levers
- Continual and repetitive analysis to determine how programs are affecting the business
- Mitigating risk by planning for potential disruptions
Of course, it’s impossible to know for certain every risk in your own environment, much less those of your suppliers. But developing a plan to respond to those risks as they come is imperative.
Make Contingency Plans
A leading global automobile manufacturer monitors many hundreds of its suppliers for weather hazards. They understand that even if their suppliers don’t have contingency plans, their company must. If they believe one of their suppliers will be unable to make a shipment, they either advance ship or order additional components prior to the weather event.
Another example of how valuable it is to have insight into what’s happening upstream is with an OEM into JIT manufacturing. They may have planned to use air freight to meet a commitment, but if they or their client could see up to 14 days out that there could be a delay, they have the opportunity to make a different decision. They could ship early and avoid the air freight costs, which are inevitably passed on to the consumer.
These types of proactive planning practices mean they can prepare for supplier issues ahead of time to either mitigate those risks or lessen their impact on their company’s ability to deliver product as expected. As such, the company stops the cycle of delays, restarts the supply chain flow and reduces costs. They are more than proactive. They are the hero.
Whether you have a handful of suppliers or hundreds, you need visibility not only into their risks that could impact your ability to deliver but how critical each supplier is to your performance. Focusing on those upstream suppliers that have an immediate, direct and/or substantial influence on your operations will ensure your priorities are in the right place. Then, you are more able to prepare for any disruptions by referring to your Plan B, C or whichever Plan makes the most sense for that situation. Having contingency plans means your organization can operate with agility. A supplier interruption doesn’t have to mean your customers will feel it.
Supplier Risk Assessments
So, how do you get this upstream insight? The first step is to perform a supplier risk assessment on your critical suppliers. By auditing your vendors’ processes, operating practices, financial health and history of delivery, you can separate rare occurrences from trends. Keep in mind that manual assessments from supplier-provided questionnaires, procurement managers and external sources, can be combined with automated supplier risk assessments. Using the right technology, companies can continually track supplier performance, providing real, historical evidence of how each supplier has met their obligations to your company.
Supplier risk assessments do more than help you see the overall health and performance of your key suppliers so you can plan ahead, but these assessments are invaluable as you regularly review your supplier contracts. If you find a supplier is continually failing to meet expectations, you will have the necessary data to justify a conversation with the vendor or even awarding the contract to another supplier.
A company can gain a competitive advantage when they can leverage supply chain predictability, mitigating disruption ahead of the competition. With insights readily available, business leaders can proactively make decisions on adjustments to optimize shipping performance.
Supply Chain Planning
Supply chain planning is nothing without predictive analytics. Companies must operationalize the data they’ve collected to make risk predictions, then proactively plan. This practice is much more complex and reliable than depending on gut feeling or even repeating previous responses to supply chain interruptions. In fact, by using artificial intelligence and predictive intelligence, companies can actually adapt their planning based on unique circumstances.
For instance, if the weather at a supplier distribution center looks like it could cause delays in shipment of a needed product the following week, companies may decide to mitigate that risk by having the shipment delivered several days early. Even if a similar situation has happened in the past, the response doesn’t necessarily have to be the same. With predictive analytics and automated recommendations, the company may find a new course of action in that circumstance would yield better results.
Automated supplier risk management means allowing technology to do the hard work instead of consuming resources and budget. The solution is much more capable of processing the large amounts of changing data required to inform these predictions. It can combine risk data about the weather, natural disasters, infrastructure issues, freight type and more that could impact the supplier facility, their fleet or the lanes those modes of transportation may take.
Supplier risk management can be made easier with less unpredictability. Supplier risk assessments are greatly enhanced when infused with artificial intelligence and predictive analytics. By shifting from manual processes to automated technologies, companies have the ability to leverage dynamic planning for ultimate control, despite the supplier risks.