Every company should have some form of risk management plan for handling supply chain disruption. The worst time to discover that your supply chain risk management plan is inadequate is after a disruptive event hits (such as a global pandemic, for example).
In most organizations, sourcing teams and engineering teams alike are so occupied by reacting to current high-priority issues that they don’t have the bandwidth to work on proactive measures minimizing future risk. Even if they had the time, they lack the information and visibility they need to make informed decisions in real-time.
Mitigating risk begins with creating a culture in your company that promotes proactive risk awareness, assessment, and management. It’s always a good time to review and update your supply chain risk management plan to find ways to improve.
Below are some strategies you can leverage to strengthen your organization’s supply chain risk management plan.
Integrate risk management into your processes
Keep risk top-of-mind by integrating it into your everyday processes—even those that don’t seem directly related to risk management. Having a process for addressing risk at every stage of the product lifecycle helps you stay agile in case of disruption.
Below are some ways you can integrate risk management into your everyday processes:
- Ask about risk mitigation strategies when qualifying a new supplier (and ask about their suppliers’ strategies, too!) with questions like, “How do you monitor the availability of components/materials? What is your process to monitor and address quality issues?”
- Include the procurement team in your supply chain risk management plan so they can incorporate your goals when designing RFPs, contracts, SOWs, and other documents. Ask them to consider factors such as expected lead times and processes to monitor the availability of components/materials. Design a quality management system together with requirements around defect rates.
- Set KPIs around supplier product diversity to mitigate risk. For example, commit that X% of out-of-catalog parts will have alternate manufacturers qualified.
Form a cross-functional risk management committee
Risk assessment and risk management require input and cooperation from many different departments and team members. Invite members from multiple functions to form a risk committee that regularly evaluates the current risks in the supply chain.
Each member is responsible for bringing risk mitigation strategies back to their area. For example, engineering can approve an alternate part if a component’s supplier may now have a higher risk rating.
The committee can also recommend new processes for mitigating risk within the company and be evangelists for risk awareness within their department.
Adopt a solution to actively and continually monitor supply chain risk
Risk is not constant. A supplier that is usually less risky can quickly become high risk, often through factors outside of their control.
To effectively monitor risk, you need real-time data to make informed decisions. Many manufacturers rely on ongoing relationships with their suppliers for real-time updates. However, these suppliers have a business incentive to not always give you every piece of information you need. Additionally, there are only so many suppliers you can have a close working relationship with.
For more in-depth insights into the current risk level, manufacturers must do their research into subjects like what’s going on in the region where the suppliers or the raw materials are located, or how well a supplier is performing financially. Achieving this level of visibility using manual processes such as online searches and contacting companies is time-consuming and still may not reveal everything suppliers need to know.
That’s why manufacturers utilize supply chain software to keep them informed about potential risks in real-time. Supply chain software alerts manufacturers to metrics such as:
- Available inventory
- Pricing
- Lifecycle
- Lead times
- Alternate parts
- Company financial health
- Trend quality issues
Diversify your supply chain to mitigate risk and reduce cost
When you work to achieve greater supply chain diversity, you help to mitigate your risk. Part Analytics provides you with the supply chain visibility you need to make data-driven decisions and proactively minimize supply chain risk.
