The supply chain could be considered the most essential component of any business. And yet, as with most essential things, we often take it for granted.
In the last year or two, we have seen firsthand how a dysfunctional or damaged supply chain can effectively strangle a business just at the moment when everything seems at a positive peak.
The truth is, none of us have that much control over the supply chain. We cannot guarantee that our access to needed supplies will remain unhindered at all times.
Is there a way to manage this risk? Is it possible to develop resiliency to supply chain fluctuations?
Here we’ll help you understand this issue in depth so you can take a balanced approach to risk management regarding your supply chain.
First things first.
What is a supply chain?
A supply chain is the network responsible for producing and distributing a particular supply to a final buyer. There are a number of links in the supply chain, each representing certain activities, information, people, or resources. Warehouses, retailers and vendors are just a few of the links on which a business’s supply chain might depend. Each company develops its own supply chain with the goal to produce their final product cost-effectively and remaining competitive in the industry.
For any business, the management of its supply chain is critical for success. Without reliable production and distribution of supplies, a company may find itself unable to deliver on promises to customers.
What is the impact of a misalignment in a supply chain?
Ideally, a company’s supply chain should align well with demand. If everything works as it should, cost remains low and service to your customers remains uninterrupted.
But if your supply chain is misaligned with demand, all kinds of disruptions can occur. For one thing, as you scramble to access needed supplies, you may find yourself paying more than what you have budgeted, making a dent in your bottom line. In addition, customers may have to wait longer to receive the finished product or service, which can put a dent in customer satisfaction. Some might even go to a competitor to get what they need.
The importance of diversifying your supply channels
By working with an array of diverse suppliers, instead of relying on just one or two, you open up all kinds of possibilities that would not be available to you otherwise. These days, industry evolves at a rapid fire pace, and in order to be successful, your company needs the flexibility to roll with the changes.
Besides allowing that flexibility, a diverse supply chain makes it easier to troubleshoot a disruption in your supply chain, enabling you to pivot gracefully to meet customer demand.
Risk anticipation and resilience
As with any aspect of your business, reliance on your supply chain brings a certain amount of risk. Risk management experts have identified two effective ways of mitigating risk: anticipation and resilience.
Anticipation is all about accurately predicting any ups and downs in your supply chain so that you can adequately prepare for them.
Resilience, on the other hand, is the ability to bounce back and recoup your losses when a disruption occurs.
Both of these strategies have their place. However, in the present climate, with shortages of all kinds coming apparently out of nowhere, anticipation is much more difficult than it used to be.
Therefore, by forming strong partnerships, you have more power to withstand disruptions in your supply chain when they do occur.
Protection : Transfer of risks to an insurer
The other risk management strategy when it comes to your supply chain is transferring the risk to an insurer.
In this way, you pass the risk to a third party (your insurance company) to protect yourself from any damage in the event of a supply chain disruption.
In doing so, you flatten the financial effects of the higher costs and service interruptions which often occur when your supply chain is abruptly misaligned with demand.
However, keep in mind that insurance will never fill all the gaps. That is precisely why there’s nothing that can replace building resiliency when it comes to supply chain.
In today’s market, supply chain is a huge unknown which can wreak havoc with your business if you don’t pay enough attention to it. But through diversification and resiliency in your supply chain network, you will be poised to ride out any disaster that comes your way.
