The use of effective contracts with penalties could reduce which form of supply chain risk part 2

Supply chain risks can have some truly disastrous consequences if they aren’t mitigated as soon as possible. Health and safety hazards, data breaches, criminal activity, issues with suppliers and even natural disasters can disrupt your supply chain.

Risks of all kinds can threaten your business’s financial health, professional standing and the welfare of the people and businesses involved in your production flow. If final products or services are affected by risks being realised, you’re also likely to face a hoard of unhappy customers, and your sales and reputation might take a hit.

So if you’re going to protect your business’s reputation and revenue effectively, supply chain risk management is essential. In the words of Deloitte, “a supply chain is only as strong as your weakest link.” So each stage of your production flow needs to be assessed for risks and control measures should be put in place to prevent supply chain disruptions or weaknesses.

We’ve put together seven key strategies that will help you reduce supply chain risk and protect your business from any disruptions to the production flow.

1: Diversify Your Supplier Base

You’re probably familiar with the saying “don’t put all of your eggs in one basket”. This saying is worth bearing in mind when managing supply chain risks. Using a single supplier means supply chain risks are more concentrated, and any issues with your supplier are likely to disrupt your entire supply chain.

By diversifying your supplier base, you can spread risks and reduce risk impact. Engaging multiple suppliers, and if possible, suppliers in different locations can help you reduce the risk of localised issues impacting your supply chain.

Working with different suppliers also allows you to select suppliers and contractors with specialised expertise and find goods and services of the highest quality and best price, helping you ensure your products or services are profitable and of good quality.

2: Have Backup Suppliers at the Ready

You never know when one of your suppliers might be unable to fulfil their role in your supply chain. There are a whole number of reasons why your suppliers may be unable to complete an order — they may be facing unprecedented demand, or they might have issues with their own supply chain. They might even decide to cease operations for one reason or another.

As a supply chain manager, it’s your responsibility to make sure that if you face issues with any of your suppliers, you prevent supply chain disruptions and delays by bringing alternative suppliers on board as quickly as possible.

So before any problems occur, make sure you have backup suppliers lined up. Identify suitable suppliers and carry out the same checks you would when choosing a primary supplier. Ideally, after selecting a supplier, you should enter an agreement with them, so they reserve production capacity in case they are needed during a supply chain disruption. Alternatively, you can simply let suppliers know you will keep them on file in case of emergencies, but you face the risk of them having limited availability.

3: Prepare for the Worst with Risk Management Plans

Just as in all areas of risk management, risk assessments are hugely important in supply chain risk management. You need to identify and assess current and potential risks that could disrupt your supply chain and ultimately, prepare for the worst. Outline control measures that should be taken to limit risks throughout your production flow and prepare responses to foreseeable events and risks that could negatively impact your supply chain.

You should build flexibility into your business processes so they can be adapted if need be to minimise supply chain disruptions. It’s also worth noting that it’s not possible to plan and prepare for every possible scenario. So your supply chain risk management strategy should prioritise by probability and impact, and implement control measures and contingency plans for situations that are most likely or would have the biggest impact on your business.

4: Aim for End-To-End Supply Chain Visibility

Your supply chain probably involves many different operational stages, and each stage faces its own risks and challenges. If something were to go wrong in one of these stages, the last thing you want is to only find out about issues later down the production line, or even worse at the last minute before the final product or service is delivered to the buyer.

The sooner you’re aware of any issues, the sooner you can deal with them and prevent them from disrupting or delaying the supply chain, or affecting the quality of final products or services. So supply chain visibility is hugely important when it comes to mitigating risks.

Supply chain visibility is about knowing where inventory is on its journey through your supply chain, and if any issues are going to affect the delivery timeline. This information might be exclusively available for supply chain management to see, or customers may be able to see this information too. With this visibility, you can track the progress of orders and ensure quick responses to any issues.

Another form of visibility that can help you reduce supply chain risks is visibility into the financial stability of your suppliers. Acquiring financial reports during the procurement process can help you choose financially stable suppliers, reducing the risk of corruption, bribery, and financial issues affecting production processes.