Supply chain management is among the most critical functions in the manufacturing industry. It is also the activity most prone to risks and crises as it is affected by myriad factors beyond the control of the business. Hence, there is a need to create a robust supply chain risk assessment and management plan that can help the business limit its losses and ensure continuity.
A supply chain risk assessment plan will comprise mitigation strategies and disaster recovery plans that make the business ready to face any unprecedented event. There is a process involved in creating such a management plan:
- Identify risk – The first step required of any business in this process is the identification of the risks that its supply chain could face, based on historical data. Any macroenvironmental situation that could disrupt the supply chain should be taken into consideration and alternatives defined.
- Ensure supplier quality – Supplier selection and onboarding should be conducted only after confirming the quality of the good and services they offer. Due diligence must be conducted on all the suppliers on the company’s roster. Apart from delivering high-quality products, suppliers should have a positive market reputation, financial stability, and the ability to deliver as per terms of the contract.
- Diversify supplier base – While it is desirable to avail of materials from low-cost sources, a company must have a diversified pool of suppliers and several alternative options. If the entire supplier base is located in one country, and if this base is affected due to factors beyond the company’s control, it leaves the company’s supply chain vulnerable and threatens its business stability.
- Limit supplier risk – A supplier also has his own share of risks such as regulation changes, political or economic instability, or other factors that can impact their ability to serve the businesses. It is ideal to be aware of their risks so that if need be corrective measures can be implemented.
- Insure elements of supply chain – It is always advisable to insure the precious raw materials that may be used by the business. There are several types of insurance that a supply chain team can consider. It is advisable to insure raw materials when they are in transit as well as when they are stocked in warehouses. A robust supply chain risk assessment and management plan will have insurance as a key aspect.
The global pandemic showcased how vulnerable the supply chain is to external factors. Even before the pandemic, this element of the business faced risk due to factors such as natural disasters, geo-political tensions, supplier bankruptcy, damage, and data breaches. Therefore, supply chain risk assessment and management plans are crucial for a company. Being prepared for exigencies can help companies recover from a disaster with minimal loss.