Supply chain risk is going unchecked

Posted on 26 Aug 2011 by The Manufacturer

Troubled by the lack of risk mitigation in manufacturing supply chains, Pradheep Sampath, director of product management at GXS, the business to business e-commerce provider expresses his concerns.

A recent report by Pricewaterhouse Coopers (PwC) titled Achieving Excellence in Production and Supply has brought the importance of a strong supply chain firmly to the forefront of manufacturers’ minds.

The report demonstrated the unprepared state of the industry particularly when it comes to identifying and acting on supply chain risks, and collaboration between suppliers and customers, and has warned manufacturers to act to protect against a “ticking time bomb” of financial instability which is threatening supply chain security.

It is widely acknowledged that while risk mitigation strategies for supply chains are integral within manufacturing companies, yet some executives still wait until they are affected by a disaster before investing in contingency plans.

We only have to look to recent natural disasters such as the Japanese earthquake to see the dire impact that not having a “plan B” can have on a manufacturer’s entire business. Of course, such natural disasters s are unavoidable, which makes supply chain risk management all the more critical. With these weaknesses in mind, there are several important strategies that manufacturers can employ that form the necessary steps to secure supply chains.

Sources of supply chain risk

In the first instance, the importance of identifying and ranking risk drivers in order to design and implement mitigation strategies can’t be understated. That said, even a short list of risk drivers can turn out to be pretty long when trying to address those risks.

Companies would be well served to identify the risk factors with most potential adverse impact to their brands and reputation and get started attacking those. For example, is it data centre downtime that has the biggest impact on your brand?

If so, outsourcing data centres to cloud hosted outsourcing providers is one sure fire way to mitigate this risk. If failure to come through with stock is more damaging, perhaps a move away from the traditional “lean manufacturing” model would be an appropriate preventative solution. In all cases, awareness is the key.

Longitudinal testing

It is common practice for manufacturers to have a robust and effective up-front screening process for new suppliers as well as new products that are introduced into the system. What is typically not in place is a rigorous paradigm of longitudinal testing over time to ensure that companies stay on top of dynamics such as the financial stability of suppliers, regulatory issues and product quality, to list but a couple.

Technology solutions to deliver real-time operational intelligence, increase multi-echelon supply chain visibility and process complex events are available to help organisations make rapid mid-course corrections to minimise and even alleviate fall-outs from supply chain disruptions. ‘Social’ tools which enable communication and visibility between manufacturer and supplier are an excellent way of generating insight into key supplier supply chain risk factors. GXS RollStream is an example of this.

Know your supplier’s supplier

Any effort expended to go beyond your supplier and understand the entire upstream ecosystem all the way to the oil field or farm or mine would be well worth it to understand impediments to getting a product on the store shelf.

Knowing where all important materials that you use in production come from helps to better understand and be aware of any potential factors that could cause disruptions to a supply chain, and help to minimise them.

Some manufacturing companies have, through this experience, actually implemented a policy of reverse globalisation, building their manufacturing plants closer to the point of sale. The end view here is that a shorter supply chain is also more resilient.

Supplier alliance management

The oft-used term ‘supplier relationship management’ needs to give way to something like supplier alliance management. Manufacturers should be ready to look beyond a primary supplier in order to mitigate risk, with dual-sourcing one potential option.

However, a robust alliance with existing suppliers is also important. Engaging in joint product design and instituting supply chain finance programs to help them with liquidity are examples of things channel masters in the manufacturing industry can do to reduce risk significantly.

In today’s interconnected society in which anything from natural disasters to strikes and riots can cause significant damage to a web-like supply chain, it is clear that manufacturers need to reassess existing processes and contingencies, and consider what steps need to be taken to improve those processes and protect B2B trading.

Ensuring that potential risks are identified and that investments are dispersed will help to ensure that there is no one single point of failure. By using collaborative tools like GXS RollStream that offer a social media style interface to support direct and immediate transparency between manufacturer and supplier can play a strong role in improving supply chain resilience, protecting against the danger that PwC has warned is threatening businesses across the globe today.