Around the middle of last year, a study sponsored by international logistics group, UPS Capital Corporation, was conducted at the University of Tennessee’s Global Supply Chain Institute.
The key takeaway of the study was simple; risk mitigation in global supply chain management is dangerously lacking in the vast majority of businesses.
A frightening 90% of the 150 surveyed firms didn’t formally quantify supply chain risk when sourcing and manufacturing equipment globally. And not a single one consulted a third party specialist prior to taking on global sourcing additions to their supply chain.
Considering that many executives are aware of the highly undesirable outcomes of supply chain problems, it was a pretty shocking set of results. Dr Paul Dittmann who headed up the investigation stated simply that:
“Any business that does not have some basic form of risk mitigation plans in place is simply gambling with its existence.” Yes, it’s that serious.
So how can you mitigate risk in your global supply chain? Here’s a how-to guide on thinking both strategically and tactically so you’re in good shape to avoid the worst happening to your business.
1. Minimise exposure to risk
First up, it’s important to minimise the amount of risk to which you’re exposed in the first place.
A good place to start here is to sit down and look at each individual component in your supply chain and give it a risk rating of 1 to 10. Next, consider what strategies or alternatives could be used that would potentially pose a lower risk rating.
For example, if you’re gather components from a country that’s known to be earthquake prone, consider if there are other countries with similar deals on the table that are not susceptible to natural disasters.
It’s easy to become comfortable with the way your supply chain is set up. But when something goes wrong, you’ll wish you’d taken the time to minimise your exposure to risk.
2. Prepare for what-if scenarios
Another great exercise is to prepare for the “what if” scenarios.
Begin by listing all of the worst-case scenarios of things that could go wrong in your current supply chain setup. What would you do if one of those scenarios happened first thing Monday morning?
Set up at least two separate contingency plans, making the necessary phone calls and doing the necessary research for each one to ensure that it’s implementable should the worst happen.
Taking the time to prepare these scenarios upfront can save you a fortune and perhaps even your business should the manure hit the fan at the 11th hour. It’s often as simple as making sure you have more than one supplier for your most important items.
3. Re-examine global approach frequently
Sourcing globally can save huge amounts of money, often in the region of 40% to 70%. But it can bring further considerations for risk, and increased exposure to the macroeconomic climate is one of them.
Schedule a time in your calendar once every month, three months or six months (whichever you deem appropriate) to assess your supply chain. Check for legislation changes, new political parties coming into power or other potential or economic shifts that could affect your global approach.
By keeping on top of things, not only will you spot problems before they arise, but you’ll operate your business with peace of mind knowing that you’re on top of your supply chain.
4. Consider how one change affects all areas
If you followed the above steps, you’ll have a series of potential problematic scenarios that can affect your global supply chain. Take a bird’s eye view on these and consider how each event’s knock-on effect may hinder other parts of the chain.
Thinking in terms of the big picture is a cornerstone of good supply chain management. But, with global considerations, it’s especially important to cultivate this kind of top-down perspective.
5. Use rigorous quality standards for new suppliers
Finally, and perhaps not surprisingly, comes the idea of applying rigorous quality standards to new suppliers. Don’t make the mistake of jumping on board with someone too soon because they have attractively low prices. It’s an age-old mistake, even if it remains tempting.
A small investment in quality control conducted by an independent third-party inspector can save enormous amounts of money later on. Stay on top of your quality control.
Want to speak to a professional about supply chain risk mitigation? Contact one of our specialists today for a quick conversation with a qualified global sourcing specialist who takes financial savings just as seriously as quality control.