Written by: Terry Weiner
The following post is #6 of a series and discusses supply chain risk management strategy. This series of posts provides an overview of the Supply Chain Optimization process and previews some of the concepts and tools that are part of the Manufacturing Extension Partnership (MEP) Supply Chain Optimization Initiative. Click here to read earlier posts.
What is your Risk Management Strategy?
Risk is defined as “An undesirable situation or circumstance that has both a likelihood of occurring and a potentially negative consequence.” Over the last two years we have seen volcanic eruptions in Europe, flooding in Thailand, earthquakes and tsunamis in Japan, hurricane Sandy on the east coast of the USA, and a typhoon in the Philippines. Each of these dramatic events had major negative consequences, and also resulted in serious supply chain interruptions.
Unless businesses whose supply chains were in these areas were prepared with a Risk Management Strategy, they undoubtedly suffered major interruptions in their businesses.
What safeguards exist in your operations to manage risk? Have you identified the risks that could impact your business? Some of the common risks that need to be considered are:
- Relationship Risks – Loss of critical or strategic suppliers or customers
- Supplier Performance Risks – Poor quality or delivery from suppliers
- Human Resource Risks – Employee safety or performance problems, fatigue from excessive overtime work, warranty claims from quality escapes
- Supply chain disruption risks – Loss or delay of shipments
- Disaster Risks – Natural disasters incapacitating your business or that of your suppliers
- Political/Country Risks – Tariffs, import/export duties, political unrest, currency fluctuation
- Regulatory Risks – Regulations, restrictions and taxes
- Operational/Planning Changes in customer/consumer preferences
- Problems with manufacturing capacity
- Service failures due to longer supply chain lead times
When supply chains are disrupted and businesses are impacted, they may, or may not be able to bounce back to where they were before the event. The survivability of the company depends solely on the company’s resilience towards the disruption and ability to manage risk events.
A Risk Management Program has four key Elements that are tied together in a top-level Risk Management Plan.
- Risk Identification - We need to identify all of the undesirable situations or circumstances that have both a likelihood of occurring and a potentially negative consequence anywhere in any of our processes.
- Risk Assessment - Analyze risks (determine likelihood, consequence, urgency, customer priorities)
- Risk Action Management – Determine the appropriate risk management strategies and the early warning signals that will warn of an impending risk event.
- a. Is the risk so minimal it is at an acceptable level
- b. What can be done to eliminate risks
- c. What can be done to mitigate the risk?
- d. Can the risk be transfer red?
- e. Do we need to accept the risk?
Risk events will happen. Are you prepared to deal with them? If you have a current Risk Management Plan, you will be ahead of the game.
In future posts, we will look at the following components of the Supply Chain Optimization Initiative - Link by Link:
|How Do You Determine Total Cost of Ownership?||
|How do I Assess Supply Chain Maturity?|
|What are the "Twin Killers" of an Efficient Supply Chain?||The Final Link - Creating Supply Chain Visibility|
|How Can You Determine Supply Chain Optimization vs. Supplier Development?|
Terry Weiner is a Senior Consultant with California Manufacturing Technology Consulting® (CMTC). He has over 20 years experience in process improvements, quality management implementation and supply chain optimization.