Reduce Supply Chain Risk: 6 Strategies to Ensure Continuity
We live in a global society. This is good news because it gives companies a great deal of flexibility to find quality sources to provide raw materials for their company. However, when you’re doing business with organizations around the world, there are many things to consider. Anything from oil prices to political events, weather, bankruptcy and more can disrupt your supply chain.
One study found that 80 percent of companies surveyed have been affected by a disruption in their supply chain at some point over the past two years. So, it’s not about “if” your supply chain will take a hit, it’s more likely “when.” To ensure continuity, there are steps companies can take to reduce supply chain risk.
Establish Strong Suppliers
The strength of suppliers is the foundation of a strong supply chain. Conduct due diligence on companies you plan to do business with. It’s also a good idea to perform the same checks on current suppliers to make sure you’re working with vendors who are financially stable with good industry reputations.
The companies that you rely on for raw materials should be judged on more than just how quickly their goods arrive on your loading dock. Are they well-respected in the industry? How do they treat their employees? Companies you choose to do business also reflect on your reputation.
Be aware of outside economic and political conditions in the regions where your vendors are located. They could impact your business. It’s also a good idea to identify quality sources that can meet your current supply needs now and can scale as your company grows.
You don’t have to own a large company to negotiate strong supplier relationships. Many suppliers may be small businesses themselves, so even small and mid-sized manufacturers can establish strong working relationships with those suppliers and help each other grow.
Diversify Your Supplier Base
It’s an oldie but a goodie, don’t put all your eggs in one basket. Especially for materials your company needs in large quantities or on regular basis, having contracts with multiple suppliers can reduce supply chain risk.
Build relationships with suppliers that can deliver more materials if there is a problem with your primary supplier. These secondary suppliers also can become key partners in your supply chain as your business scales. Having multiple suppliers also gives you confidence to negotiate competitive rates with all the vendors you work with.
Choosing suppliers in different states or countries will also ensure that your supply chain is not completely disrupted by a natural disaster in one region. So, if mother nature throws a wrench in the supply chain, you already have a good relationship with other suppliers that can temporarily meet demand. This contingency plan will also help you sleep better at night, knowing there are safeguards in place to get the materials you need.
Create Solid SOP
Developing standard operating procedures for your business, including your supply chain, will make your expectations clear to outside suppliers and your internal employees. Detailing the processes promotes professionalism, reduces errors, and ensures efficiency and productivity.
Beyond stabling business processes, SOPs should incorporate industry regulations and laws that your business follows. Well-designed SOPs can add value to your business if you decide to sell or bring in an investor.
Increase Important Inventory
There is a case to be made for building up a larger than normal supply of specific raw materials that are either difficult to procure or are critical to your entire operation. Some will argue this can tie-up cash reserves and limit a company’s ability to run lean and mean. However, exposing your supply chain to shortfalls or other unforeseen disruptions can be just as detrimental to your bottom line.
So, if your operation can’t run without a specific raw material, having safety stock on hand will provide piece of mind that operations can continue, even if your supply chain hits a speed bump. Proactive risk management could make more money for your company in the long run, because you avoided a lengthy shutdown while waiting for the next delivery. There should be a balance between risk and cost to ensure continuity in the supply chain.
Explore Alternative Shippers
Businesses should not rely on a single transportation carrier to deliver raw materials to your facility or to send products to customers. Just like suppliers, you want to do business with reliable shipping companies. Another important reason to diversify transportation carriers is cost. Depending where your vendors or customers are located, it may cost less to ship to one customer by air and ship the same product to another customer by train.
Having multiple transportation options can also help in the event of a natural disaster or problems with a vendor. In the past, using different carriers would require hours on the phone getting quotes and scheduling pickups. Now, technology can find and schedule the quickest and most cost-effective shipping routes for product deliveries to reduce supply chain risk.
Identify Current Supply Chain Risks
These are some of the most likely areas your organization can be affected, but every supply chain is unique. The difficulty for each company is balancing strategy with risks. Every CEO wishes they had a crystal ball to predict the future. While we don’t have a crystal ball, we do have technology.
Network modeling can improve supply chain efficiency, cut operating costs, manage inventory, and get your products from point A to point B in the most affordable and reliable manner. By looking at different scenarios where your company’s supply chain can be disrupted, you can plan ahead and be prepared if disaster strikes.
These strategies can help companies mitigate supply chain risk. They can also be helpful to someone looking to start their own supply chain consulting business and work with customers to reduce risk in their supply chains.
Today’s managers know the importance of protecting supply chains from serious and costly disruptions. Having the right data at the right time is key when making decisions to create a strong supply chain.