Lean manufacturing has evolved into a pivotal element of effective supply chain management, empowering businesses to maintain agility and adaptability in response to shifting market preferences. However, this reliance on streamlined operations, often involving extensive outsourcing and minimized stock, introduces a complex web of vulnerabilities and exposures.
Given that these challenges often span across regional, national, and global supply chain territories, managing and navigating these risks can be daunting. Fortunately, supply chain risk management has been evolving, offering an expanding toolkit of best practices to help businesses steer through these turbulent waters.
The evolution of supply chain risk management
Understanding your unique exposures and liabilities begins with assessment. Thorough risk assessments, meticulously charting the entire supply chain journey, from sourcing raw material suppliers to end consumers, can help fortify your supply chain against potential disruptions.
This holistic approach empowers organizations to identify potential weak links, including logistical bottlenecks, over reliance on single suppliers, elevated natural disaster risks or geopolitical instabilities. Monitoring the landscape for emerging developments is also critical. While some natural disasters (and global pandemics) are difficult to predict, modern mitigation techniques can help you stay ahead of emerging supply chain vulnerabilities. The following twin pillars of modern supply chain risk management can help protect your business:
Variation: Traditional supply chain models focused on cost evaluation, inventory management and capacity assessment. Today, mitigating supply chain disruption is about safeguarding the reliability and availability of raw materials and components. Concentrating sourcing in a single region or relying solely on one supplier can leave you vulnerable to disruptions. Yet, diversifying suppliers and logistics partners across different geographical locations can help fortify your supply chain and give you other options.1
Digital Evolution: By integrating cutting-edge analytics, artificial intelligence, and deep learning, you gain the ability to forecast trends and take preemptive actions to manage disruptions. Predictive analytics tools often use big data to detect real time patterns, forecast future outcomes, leverage historical data, predict demand, and ensure optimal production. This intel driven decision making can help create competitive advantage and keep your organization ahead of the curve as the landscape evolves.
Cultivating Strong Relationships
Cultivating robust relationships with suppliers fosters collaboration and strengthens your supply chain’s resilience. Mutual trust and understanding enhance communication, problem-solving, and shared risk management. Strong relationships also support flexibility in responding to disruptions and risk events.2 Approaches to consider when forming/reinforcing solid supplier relationships and mitigating risks include:
- Carefully choosing suppliers and conducting regular audits and inspections, assessing their commitment to business interruption prevention.
- Verifying potential suppliers’ ratings through organizations like Moody’s or S&P.
- Ensuring that suppliers have adequate insurance coverage.
- Crafting contract scopes with specialized legal counsel, considering indemnification and defense agreements.
- Collaborating with MJ or other insurance broker to gauge your exposure and create a business interruption worksheet for precise assessment of potential revenue and profit impacts.
- Regularly updating the worksheet to account for market changes and business model shifts, focusing on not just individual risk but also interdependencies within the supply chain.
- In response to global events, scrutinizing for potential vulnerabilities.
- Staying vigilant regarding emerging risks such as cyber warfare, climate change, nanotechnology, and synthetic biology.
- Implement risk mitigation plans, including business continuation, geographical server diversification, business relocation strategies, and alternative supplier sourcing.3
Risk transfer can be a powerful element in a robust risk management strategy. Consider transferring risk by acquiring suitable coverage, which may include Business Income Disruption, Marine and Cargo coverage for long-distance shipments, Liability coverage (e.g., Commercial General Liability, Directors and Officers Liability), and other specialized endorsements tailored to your exposures. Ensure that your policy covers loss of supplier, supply stoppage, and service interruption.
UpdatIng Risk Mitigation Plans
Risk mitigation is an ongoing process. Given the dynamic nature of global events, regularly review and update your risk mitigation plans to ensure their relevance and effectiveness. Conduct scenario planning exercises to prepare for various potential disruptions, identifying weak points and developing contingency plans.
Building Resilence: The virtue of a Collaborative Approach
Engaging supply chain partners and insurers in your risk management efforts while periodically reassessing exposures can go a long way toward effectively mitigating supply chain risk. While disruptions may be inevitable, the goal is to create a supply chain that not only operates efficiently but also exhibits resilience, one capable of weathering storms and emerging stronger.
After all, the ship that survives is rarely the one that can only sail in calm waters. It’s the one best prepared to weather the storm that makes reaches port.
At MJ, we’re here to help you navigate and prepare for whatever challenges come your way. While we can’t stop the gail, our comprehensive data driven approach puts us in a unique position to understand your risk profile and tailor the optimal treatment for your exposures aligned with your overall strategy.
Contact us today to discover how we can help you build a robust risk management strategy.CONTACT US TODAY
- “The Top 10 Supply Chain Risks That Companies Face.” com. Retrieved Sept. 2023. https://www.moodysanalytics.com/articles/2022/the-top-10-supply-chain-risks-that-companies-face
- “Managing Risks Across the Supply Chain.” zywave.com. Retrieved Aug. 2023. https://cms.zywave.com/content/46331?referenceGuid=52edb910-c684-4349-bd18-cf0456ab59b2&fromLabel=Search%20results&internalHref=%2Fsearchresults%3Fquery%3Dsupply%2520chain%26searchType%3Dcontent%26pageIndex%3D0%26sortType%3Dmatch&defaultLanguage=en-us