Managing Supply Chain Risks to Avoid Losing Money
Supply chains are the lifeblood of modern businesses, connecting suppliers, manufacturers, and customers around the world. But these complex global networks are also vulnerable to all kinds of disruptions – from natural disasters and political unrest to labor shortages and equipment failures. When something goes wrong in the supply chain, it can cost companies millions in lost sales, higher costs, and damaged reputations.
That’s why smart companies are taking a proactive approach to supply chain risk management. By identifying potential threats and putting plans in place to mitigate them, they can minimize the impact of disruptions and protect their bottom line. Here’s a behind-the-scenes look at how some leading companies are doing it:
Diversifying Suppliers to Reduce Reliance
When the COVID-19 pandemic hit, many companies found themselves scrambling as their primary suppliers were forced to shut down. Kellogg’s, for example, faced a packaging shortage when its Korean supplier ran into shipping delays. To keep products on the shelves, the company “scoured the world” to find an alternative supplier in New Zealand .
This experience highlighted the importance of not having an overly globalized supply chain. As Kellogg’s executive Sanjeev Wijesuriya put it, “It’s led us to look at the diversity of the supply chain… and the benefits of having a supplier closer to home” . By diversifying their supplier base and bringing some manufacturing closer to their key markets, companies can reduce their reliance on any single source and be better prepared for disruptions.
Investing in Supply Chain Visibility and Automation
Another key strategy is improving supply chain visibility through technology. Companies like HP are using tools like radio-frequency identification (RFID) to track raw materials, components, and finished products in real-time . This allows them to spot potential problems early and take action to mitigate them.
Automation is also playing a big role. By automating processes like inventory management and order fulfillment, companies can reduce human errors and delays that can lead to lost products and sales . As HP’s CFO Marie Myers noted, the company has accelerated its cost-cutting efforts through restructuring and automation in response to the pandemic .
Strengthening Supplier Relationships and Performance
Of course, technology is only part of the solution. Companies are also focusing on strengthening their relationships with suppliers and closely monitoring their performance. As the Oracle article explains, “An unreliable supplier is a disruption waiting to happen” . By regularly evaluating suppliers on metrics like on-time delivery, quality, and financial health, companies can identify issues early and work with suppliers to address them.
Building trust and collaboration with suppliers is also crucial. As the Kellogg’s executive noted, the company’s ability to respond to the pandemic was due in large part to “how the people across our business and supply chain banded together to meet demand” . When suppliers feel like true partners, they’re more likely to go the extra mile to ensure continuity of supply.
Preparing for the Unexpected
Even the most well-designed supply chains can’t prevent every possible disruption. That’s why leading companies are also investing in robust risk management plans. As the Oracle article outlines, this includes strategies like scenario planning, predefined response plans, and supply chain command centers to help them react quickly when something goes wrong .
The goal is to build in enough “slack” and flexibility to absorb shocks without grinding to a halt. This might mean keeping extra inventory on hand, diversifying transportation modes, or having backup suppliers ready to step in. It’s an insurance policy against the unknown – and one that can pay off handsomely when disaster strikes.
The Bottom Line
In today’s volatile business environment, supply chain disruptions are not just a nuisance – they can be an existential threat. Companies that fail to manage these risks proactively can find themselves facing plummeting revenues, soaring costs, and lasting damage to their reputation.
But the companies that get it right can turn supply chain management into a competitive advantage. By investing in visibility, diversification, and resilience, they can minimize the impact of disruptions and keep their business running smoothly – even in the face of the unexpected. It’s a strategic imperative in an increasingly uncertain world.
