Most managers know that they should protect their supply chains from serious and costly disruptions — but comparatively few take action. The dilemma: Solutions to reduce risk mean little unless they are evaluated against their impact on cost efficiency.Today’s managers know that they need to protect their supply chains from serious and costly disruptions, but the most obvious solutions — increasing inventory, adding capacity at different locations and having multiple suppliers — undermine efforts to improve supply chain cost efficiency.
Managers appreciate the impact of supply chain disruptions, they have done very little to prevent such incidents or mitigate their impacts.This is because solutions to reduce risk mean little unless they are weighed against supply chain cost efficiency. After all, financial performance is what pays the bills.
1. Take a Broad View of Supply Chain
Identify All Relevant Risks
Review Upstream Suppliers
2. Prioritize Around Significance and Likelihood of Disruption
Supply chain efficiency, which is directed at improving a company’s financial performance, is different from supply chain resilience, whose goal is risk reduction. Although both require dealing with risks, recurrent risks (such as demand fluctuations that managers must deal with in supply chains) require companies to focus on efficiency in improving the way they match supply and demand, while disruptive risks require companies to build resilience despite additional cost.
Disruptive risks tend to have a domino effect on the supply chain: An impact in one area — for example, a fire in a supply plant — ripples into other areas. Such a risk can’t be addressed by holding additional parts inventory without a substantial loss in cost efficiency. By contrast, recurrent risks such as demand fluctuations or supply delays tend to be independent.
They can normally be covered by good supply chain management practices, such as having the right inventory in the right place.They can reduce risk while also improving supply chain efficiency — a “win-win” – or they can reduce risk while limiting the impact on supply chain cost efficiency.
Zeeshan Ilyas, CSCA,CSCM
Connecting, Innovating & Inspiring on a Global Level !
Startup Mentor & Supply Chain Coach
The opinions expressed in this article are those of the author.
Discover how the CSSC Certification Program is Transforming the Careers of Supply Chain Professionals, and assisting organizations transform their supply chains into value chains.
Take advantage of this opportunity to put your company out front, and not only have a well-qualified workforce, but also a workforce that will enjoy their work as they will not only know what they are doing, but perhaps more importantly why they are doing it.
Connecting Minds & Inspire Learning
Take advantage of the FREE Resources available at BicaraSupplyChain. Due to Coronavirus Covid19 and highly stressful conditions we can keep sharing knowledge and advice to solve problems is the most crucial for the future of charities.
Be better prepared for when the world returns to "normal". LEARN from SupplyChain Experts to pick up the pieces after the dust has settled. We broadcast every week and all year around the most up-to-date series of podcasts.