Supply chain risks have never been more prevalent, and in order to stay afloat, businesses need to do more than ever to mitigate these disruptions.
Supply chain risk management involves implementing several strategic steps to mitigate risk throughout supply chain enterprises. Risk can come in the form of both internal and external conflict; therefore, risk management systems must reflect the countless number of actors that can contribute to supply chain dysfunction.
Since the introduction of supply chains, there have been disruptions that threatened the resiliency of risk management techniques. Despite this, supply chains networks are frequently woefully unprepared for interruption, a fact which has been made readily apparent by recent delays caused by the COVID-19 pandemic and ongoing shifts in consumer attitudes toward e-Commerce.
These shifts have been such that in a recent Gartner survey of retail and manufacturing organizations, only 21% of respondents stated they had a highly resilient network, though more than half expected to be “highly resilient” within a few years.
Modern supply chain risk management strategies enable companies to bounce back from disruption, or better yet, to avoid it all together. To evaluate a risk management strategy, it’s important to understand both the current state of affairs in the supply chain and what techniques can be utilized for a better tomorrow.
5 supply chain risk management strategies and considerations for 2022
Increased regulatory demands
The supply chain “handbook” is changing rapidly in today’s tumultuous climate.
President Biden’s response to supply chain disruptions involved several regulatory executive orders on supply chain operations. The ongoing climate crisis is worsening and regulatory agencies are installing numerous measures on supply chain systems to lower carbon emissions, and the ongoing effects of the COVID pandemic have highlighted key issues in current supply chain processes, threatening to rewrite the compliance handbook altogether.
Contrary to historical approaches, supply chain leaders are now looking to operate proactively using the weaknesses exposed by the pandemic. Mainly, they are adopting more advanced supply chain risk mitigation practices to both ensure compliance with future regulatory demand, and establish optimal operations for the new era of supply chain management.
These practices largely include providing increased visibility into supply chain operations and being vigilant in terms of ongoing risk monitoring. As new regulations are realized, advancing supply chain optimization practices will not only guarantee resilience, but will allow companies to stay modern, establish best practices and metrics, and avoid a tarnished reputation in an increasingly globalized and consumer-focused market.
A rise in technological solutions
A lack of modern technical solutions can lead to siloed operational methods and as a result, understocking/overstocking, lost revenue, and an increased chance of risk within your supply chain.
Traditional methods of MRO inventory management used historical data to garner insights about future need. With AI and machine learning approaches, however, companies are now able to analyze real-time data to evaluate needs more accurately, efficiently, and safely.
AI and machine learning integration help businesses to understand the complex information being received at all times throughout supply chain enterprises. With an improved understanding, leaders have increased visibility into day-to-day systems and therefore can make more informed decisions.
These technologies additionally allow for faster delivery expectations as advancement in AI also includes more opportunities for improving material management processes. By optimizing portions of the supply chain, such as maintenance, repair, and operations, experts can focus on streamlining material spend data, improving workflows, expanding coverage, and determining how to optimize auxiliary processes to mitigate risk.
Optimizing material management to counter inflationary costs
The Prices Index from the Institute for Supply Chain Management indicated in October that businesses will see higher materials prices for the 32nd consecutive month.
In addition, higher import tariffs, and high freight and warehousing costs have threatened to drive prices to unseen levels. Several companies have raised their prices as a result, although this risky endeavor can jeopardize consumer attitudes.
For most supply chains this alarming period offers a chance to reevaluate current inventory management processes. Seek haven in savings – increasing visibility into procurement, warehousing, transportation, and distribution can uncover opportunities for saving in typically costly areas of the supply chain. A necessary step no matter the climate, but one especially pertinent now.
Beyond savings, looking for opportunities to streamline company processes has a variety of benefits. Exploring the impact AI can have on data visibility or the importance of optimization will inevitably improve efficiency within supply chain systems.
Reassessment of the suitability of lean stock
Lean management is a procedure for improving the value of a company’s stock by identifying and targeting waste in the supply chain through continuous improvement of manufacturing processes.
Before modern lean stock practices, companies would manufacture their goods based solely on demand planning. However, with lean, “just in time” (JIT) management, manufacturers focused on processes that eliminated excess inventory and only stored what they needed in a specific time frame.
Toyota, regarded as the leader of JIT, is a great example of a company employing lean stock management, having switched to a make-to-order method supplemented by the continuous analysis of real-time production line data.
The benefits of reassessing the suitability of lean stock are numerous and wide-ranging. For one, reduced stock-keeping unit counts and inventory levels, standardization of supply chain processes, and a general reduction in costs of goods sold compared to companies not adopting lean principles.
While these practices adequately served supply chains for decades, factors such as COVID, geopolitical strife, and other global disruptions reveal just how much this management philosophy no longer suffices.
Renewed focus on resilience
All around the world, supply chain management professionals are shifting their focus from efficient delivery to resiliency from supplier disruptions. This is of course due to the pandemic, as well as several emerging issues happening across all supply chain enterprises.
What changed? Firstly, people are beginning to understand the risk and fragility of the supply chain. If you aren’t taking steps to shift from a just-in-time inventory model that maximizes speed, to one that prioritizes supplier diversity and technological innovation meant to maximize resilience, you’re going to be stuck by the wayside.
Having the ability to resist and recover from supply chain disruption is invaluable in today’s market. Supply chain resilience can be strengthened by optimizing MRO inventory levels, adding manufacturing/storage capacity, and constant evaluation of the supply base.
Additionally, new information and manufacturing technologies provide great potential for improving resiliency and productivity in response to real-time demand analysis.
Globalized supply chains are naturally ripe for risk as one disruption can have a ripple effect throughout the entire system. Organizations must design robust supply chain risk management strategies for handling both known and unknown supply chain dangers.
By considering the factors listed above, businesses can do just that, and minimize supply-chain disruption while adding value through smart management practices. To learn more about reducing supply chain risk through MRO optimization, download the white paper on MRO optimization today.