Many companies lack a robust supply chain risk assessment process. Organizations run into crises and struggle with disruption of production due to supplier vulnerabilities. They resort to last-minute risk management, which at times proves ineffective.
Certain risks associated with suppliers are expected and foreseen, such as a sudden change in supplier pricing, bankruptcy or cyberattacks. To optimize the supply chain, a company should follow an established supply chain risk assessment procedure. Important points to note are:
- Risk assessment – It is imperative for every company to do a complete supply chain risk assessment to ensure that every aspect of the value chain is defined and any untoward situation can be dealt with effectively. This entails defining materials, labor requirements, logistics, storage, and creating a process flow to deal with the unavailability of any of the parameters mentioned above. This will ensure the company is well-equipped to handle unexpected events and its business is not affected.
- Raw material value chain – Companies need to effectively manage raw material purchase to ensure processes are seamless. Quality is of utmost importance while buying raw materials as they are the core inputs in a product. Purchasing in bulk ensures the best possible price; moreover, supplier pricing does not fluctuate much.
- Geopolitical situation in source countries – Supply chain risk management involves tracking the geopolitical environment of countries from where raw materials are sourced. Identifying alternative sources or materials is important to deal with a scenario of unavailability of raw material.
- Spreading of risks – Having several vendors or suppliers for various procurement needs is essential. Even if you have good working relationship with a vendor, it helps to maintain a list of other dependable vendors you can work with. This ensures smooth functioning of business even in the absence of your main supplier. It also acts as a buffer against sudden changes in supplier pricing. Checking with various vendors helps in reducing cost and ensuring timely delivery of raw materials.
- Logistics – Supply of raw materials and finished goods should be planned effectively. Smart demand planning and correct lead time management can help lower the time and cost effort on logistics.
These are some of the many ways to optimize your supply chain and have a strong supply chain risk assessment framework. It is always recommended to have a procurement agency which has the expertise to help you take correct decisions.