Major disruptions to global supply chains have been unrelenting since the early days of the COVID-19 crisis. Today, with war raging in Ukraine and economic sanctions against Russia, global trade is even more disrupted. Companies across all industries feel compelled to re-evaluate their supply chain vulnerabilities and strategies – and it’s not just big companies that need to act.
Small and medium-sized businesses should be equally concerned about these disruptions – if not more so, as they often lack the margins to compensate for significant downturns in their business and may be less nimble in responding to increased customer demands and changes in regulatory, economic and technological landscapes. Here, we take a step back from the overwhelming global geopolitical crises unfolding to explore five practical ways for midsize businesses to build supply chain resilience through risk management practices.
Think broadly about your supply chain
First, let’s define it. A supply chain is the network of people, companies, resources (knowledge, utilities, materials, services, etc.), processes and technologies used to manufacture and sell a product or service. The outline of this definition provides a holistic approach to help build a matrix that improves your supply chain visibility. First, business leaders should create a comprehensive list of vendors for each category, then prioritize your vendors based on your level of dependency and the materiality of a disruptive event. Next, develop the matrix by beginning the risk management process – identifying your risks and rating them in terms of frequency and severity of impact.
Here are two examples of how to approach risk identification and assessment:
- Consider talent supply chain risks by examining the resources and methods your organization uses to attract, hire, engage and retain talent and manage leadership succession. Quantify the likelihood and severity of higher than normal quits, wage inflation, unionized workforce, recruitment costs, and surge in demand for benefits and welfare programs. be over the next 12 months.
- Consider a material supply chain risk by looking at critical upstream and downstream material dependencies. Quantify the value of these supplier relationships and the impact on customers and internal teams if disrupted. Consider alternative sources for the type and quality of goods or services each provides. You should also assess your organization’s rank and position with major vendors and be committed to strengthening your agreements and purchasing strategies. Every vendor has their list of top and preferred customers, but is your company on your vendors’ lists? Large supply distribution companies typically offer volume-based pricing or preferential purchasing programs and for some, in times of crisis, this can mean priority purchasing capacity and delivery. Your medium-sized business can be a big deal for a local or regional supplier. It is therefore important to take steps to improve your situation before a crisis or disruption occurs.
Improve supplier audit
After identifying and prioritizing critical vendors, consider adding meaningful contractual provisions and auditing processes to key contracts. There are many options for supplier audit platforms or you can develop your own questionnaires and methods. Here are some examples of questions you might ask during an audit:
- Does your company have a documented supply chain strategy?
- Does your supply chain strategy clearly support our commitment? How?
- Is your supply chain strategy supported by clear and understandable functional, team and individual performance objectives? Please describe.
- How do you notify customers of supply chain disruptions or shortages?
Another option is to contractually require vendors to provide their business continuity and disaster recovery (BC/DR) plans and/or test results annually. For integrated vendors or those you depend on significantly, consider requiring semi-annual live BC/DR tabletop exercises using creative and relevant scenarios as a service level agreement.
Increase supplier diversity
Many businesses owned by women, veterans and minorities have been decimated by the pandemic when their supply chains have slowed or failed completely and they have been unable to keep pace with customer demand. However, following an infusion of government grants and small business loans and record private funding, training and infrastructure support, a strong class of diverse businesses has emerged. Diversifying your core supplier base through new targeted relationships with these types of companies improves your corporate social responsibility profile, fills gaps and creates redundancies in critical areas, drives innovation and increases recognition of the brand among different demographic groups.
Clean up siled tech providers
Technology is undoubtedly essential to supply chain management. While it’s often necessary to have multiple technology tools and platforms to support your operations, acquiring technologies in silos can put organizations’ logistics at risk. Well-established companies with highly segmented operations and new, fast-growing companies that lack centralized IT roadmaps, review and approval processes often adopt tools and platforms without cross-checking their business cases. use or their cross-functional impact. An IT inventory that examines key features of third-party and on-premises legacy systems can reveal outdated or unnecessarily redundant technologies that create more problems during system crashes, cybersecurity attacks and breaches, and when tracking access to confidential information. IT strategic planning and discipline in technology acquisition are integral to mitigating risk as growing trends in advanced automation, analytics, and digital supply chains continue. This is an area where business leaders need to establish strong controls, streamline partners, and audit security compliance and solvency.
Put supply chain trends in the right context
There is no shortage of articles on emerging trends in supply chain management, and many could not have predicted the current geopolitical landscape with an invasion in Europe, soaring global oil prices and the onslaught of ransomware attacks that disrupt supply chains every day. It’s important to stay practical and focused on controlling the right risks, in the right way, at the right time for your organization because you can’t address everything.
Talk to your trusted advisors – insurance brokers, lawyers and trade groups – about the relevant trends you need to prioritize for your business, and don’t neglect your business leaders and internal teams. Often, internal issues are a driving force behind supply chain and business disruptions – talent shortages, understaffed purchasing departments, inappropriate financial forecasting, aging buildings and technology infrastructure, employee burnout, etc Focus on yourself and strengthen collaboration between functional leaders to better understand the trends that have the most impact on your strategy.
Applying risk identification and assessment methods can help you understand the gaps in your organization’s supply chain management strategy and lead to comprehensive and well-informed action plans. As you implement, monitor, and adjust these action plans based on experience and emerging risks, your mitigation practices will mature and lead to a better state of risk control.