Risky Business: Eliminating the Risk of Supply Chain Disruption and Volatility
It’s Sunday evening and the football game has not yet started, so you decide to tune into 60 Minutes to pass the time until kickoff.
Coup d’état, hurricanes and 60 Minutes!
You watch as a reporter introduces the story about a company that has been engaging in the bribery of officials in some little country located on the other side of the planet. It seems that they are paying for access to some local mineral that is only available in a handful of countries. Your mind is suddenly puzzling over the fact that this rare mineral sounds awfully familiar. Then you remember, that’s the stuff you use in your flagship product.
As the camera pulls back, you immediately recognize your supplier’s HQ building. The footage rolling on the screen shows police officers carrying out boxes of files and leading a couple of fellows to a cruiser—and they’re wearing handcuffs.
Wow, now there’s a problem. Your sole supplier of rarenesium is now out of business.
Okay, so you deal with honest companies. How many of your suppliers are located in Tornado Alley? How many in politically unstable countries that see coups and revolution as a national sport?
Today companies are more than likely working with suppliers located almost anywhere on the planet. If these suppliers are critical to your production process, there is considerable exposure for companies that fail to plan for supply interruptions.
Weather, political or military disruption and labor/logistical issues can play havoc with critical supply delivery schedules. Supplier performance should be constantly evaluated, and back-up suppliers should be available.
Can you see into your supply chain?
Your Supply Chain Management solution should provide you with visibility into your supply chain. Certain conditions should trigger warnings, selection of alternate suppliers and back-up vendors for everything you purchase.
Dependency on a sole source is dangerous and usually ends up being expensive. Nothing encourages price increases like the perception that you have no other alternative suppliers. Incorporating multiple suppliers where possible can offer the opposite pressure on prices. Knowing that there is competition can incent your supplier to think twice before jacking up prices.
ERP systems today offer robust data maintenance and reporting capabilities in this area. The risk of supply interruption, in many cases, can be reduced to a very low order.
So, while risk is always present in the marketplace, and avoidance of risk can still be a useful strategy, the ability to embrace risk and manage risk is a strategic strength for businesses in general and advanced manufacturers especially.