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Mastering Supply Chain Risk: A primer for operations managers

Navigating the intricate web of supply chain management requires foresight, adaptability, and strategic planning. For an Operations Manager, identifying and mitigating potential risks can be the difference between seamless operations and significant business disruptions. Here’s a guide to understanding and managing these risks effectively…

Risk Identification through Auditing: The first step in risk management is identification. Regularly conduct comprehensive audits of your supply chain. This includes examining each link, from raw material suppliers to final-mile delivery, to identify vulnerabilities. Utilise analytics tools to visualise choke points, inventory turnover rates, and supplier performance metrics.

Supplier Diversification: Relying heavily on a single supplier can be perilous. A disruption in their operations could halt yours. To mitigate this, diversify your supplier base. Having multiple suppliers, preferably from different regions, ensures that a disruption in one area doesn’t paralyse your entire supply chain. This diversification spreads risk and provides alternative options should one supplier face issues.

Maintaining Safety Stocks: While lean inventory practices are cost-effective, they can be risky during supply chain disruptions. It’s wise to maintain safety stocks, especially for high-demand or critical products. These act as buffers during unexpected demand surges or supply shortages, ensuring continuous product availability.

Contingency Planning: ‘Hope for the best, prepare for the worst.’ Develop comprehensive contingency plans for various scenarios – natural disasters, supplier bankruptcies, geopolitical disruptions, or transportation strikes. These plans should detail alternative suppliers, routes, or processes to ensure continuity. Regularly review and update these plans, and ensure that all stakeholders are familiar with them.

Strengthening Supplier Relationships: Forge strong relationships with key suppliers. Regular interactions can provide insights into their operational challenges, financial health, or potential risks. A transparent relationship can ensure that suppliers communicate potential issues well in advance, allowing for proactive measures.

Investing in Technology: Leverage technology to monitor and manage risks. Tools like AI and machine learning can predict potential disruptions based on historical data and current market conditions. Real-time tracking systems can monitor shipments, alerting any delays or issues.

Training and Development: The human element cannot be overlooked. Regularly train your team to recognize potential risks and respond effectively. Workshops, simulations, or role-playing exercises can be valuable in this regard.

Monitoring External Factors: Keep an eye on global and local events that could impact your supply chain. This includes geopolitical events, policy changes, economic shifts, or natural disasters. Being informed allows for quicker response times and better decision-making during crises.

In the complex ecosystem of supply chain management, potential risks are a given. However, an effective Operations Manager sees these challenges as opportunities to strengthen the system.

Through proactive risk identification, strategic planning, and adaptive measures, it’s possible to build a resilient supply chain capable of weathering any storm. Remember, preparation today prevents poor performance tomorrow.

Are you searching for Risk Management solutions for your business? The Total Supply Chain Summit can help!

70% of businesses ramping up investment in supplier risk detection

Moody’s Analytics research into third party risk management shows that the threat to reputations is a key driver of investment in supplier risk detection.

Key findings include 69% of businesses say they do not have the necessary visibility over their supply chains to uncover risk in their organisational networks to avoid reputational harm.

Meanwhile, 70% of businesses are growing their investment in third party risk management and 74% rated their third party risk management sophistication as either poor or mediocre

Businesses pointed to a range of factors driving these assessments: a lack of data, difficulty evaluating every organization in a supplier network, and the responsibility for supply chain visibility being spread across departments.

Keith Berry, General Manager, Know Your Customer Solutions at Moody’s Analytics, said: “The past couple of years have brought supplychain risk to the fore. Organisations that can account for the environmental impact of their suppliers and demonstrate that they work with fair and ethical organizations can better protect their reputations and are more appealing to consumers. It’s clear that visibility of supply chain risks can provide huge competitive advantages.

“Identifying risks associated with suppliers buried in the supply chain is crucial to corporate responsibility and to protecting reputations, especially for consumer-facing businesses and regulated organisations which are particularly sensitive to reputational risk. Yet gaining visibility into operations and suppliers in lower tiers of the supply chain is a challenge, with their data unavailable or firms not required to release information.

“Supply chain issues, such as those seen in the retail sector and in a recent case of an Iranian drone found to contain US parts, have brought supplier risk into sharper focus and demonstrate the reputational impact supply chain risk can have. New regulation such as the German Supply Chain Due Diligence Act and the EU’s upcoming Corporate Sustainability Reporting Directive has further amplified the strategic importance of supply chain visibility.”