Supply Chain Risk Mitigation: Understanding & Managing Risks
Supply chain risk mitigation doesn’t have to be a daunting task, no matter how complex your supply networks are. Keep reading to learn what steps to take to help your organization identify and respond to supply chain risk.
Why supply chain risk management gets so sticky
All supply chain leaders know it’s important to reduce risky elements in their supply chains. They know that if they don’t address those risky elements, they could break and cause disruptions that can hurt the business. But knowing where to start is another matter.
Most people we’ve spoken with say the first challenge is that it’s tough to quantify risk: how do you tie it to potential impacts on profits, service, ESG, or other metrics? Even if they can identify and quantify the risk, they don’t always know what to do about it. Understandably, this can feel frustrating and overwhelming.
So what can you do about it? In the infographic below, we break down four steps you and your supply chain organization can take that, with the right technology, can demystify the risk assessment and mitigation process.
How to mitigate supply chain risk
For the modelers and managers: A deeper dive into supply chain risk management
The questions above are helpful to guide you through the process, but let’s dive into the details to make these steps more specific:
Ways to identify risk
Different organizations evaluate risk differently. So let’s define some terms:
- Revenue at risk: Any potential situation that could negatively impact your company’s future revenue.
- Impact level on service: Any potential situation that could reduce your ability to meet demand.
- Capacity risk: Any potential situation that could negatively impact your organization’s ability to meet your production capacity. This could include impacts or risks to resources, equipment, and more.
- Location-based risk: Different locations and geographies carry different risks, such as: climate and weather risks, geopolitical risks, and so on.
- Supplier-based risk: Many organizations have limited insight into their suppliers’ suppliers, which can have risky ripple effects.
Identifying risk often means evaluating a combination of the above factors and deciding what matters most to your business goals and values. When you’re clear about which factors to evaluate, that helps your supply chain modelers understand which scenarios to test.
How to quantify risk
In the infographic above, we call out revenue at risk, which is the most direct way to help you and your business partners understand the impact of a risk event. Other risk impact factors may include demand unserved, cost increases, service time implications, and flow shifts.
How to produce recommendations efficiently
It takes time to run scenarios and produce recommendations, even with an effective team of top-tier supply chain modelers. After you’ve defined the risk you want to identify and quantified the impacts of those recommendations, how can you quickly surface recommendations that produce the best options your organization can take to reduce the risk now or respond to the risk if it occurs?
This is where AI-driven technology, such as Supply Chain Prescriptions can help:
- Identify the riskiest sites for you while you manage other aspects of your network design.
- Bring critical risk scenarios to the surface from a revenue-at-risk or profit-at-risk perspective.
- Quickly create contingency plans to shift to alternate suppliers, distribution centers, or manufacturing plans.
Take action with trade-offs in mind
There’s no one right way to analyze trade-offs. But as you identify which elements in your supply chain you want to de-risk and by how much, it’s helpful to break down supply chain risk mitigation into two branches: act and prepare.
When you prioritize acting on supply chain risk you are proactive about removing risky sites and/or adding optionality through alternative flow paths.
When you prioritize preparing for supply chain risk you develop a contingency playbook that identifies the best recovery actions your organization can take if a disruptive event occurs.
You can also choose to both act and prepare. But sometimes the cost of de-risking a supply network outweighs the actual risk. However, a contingency plan allows your organization to respond and recover faster after a disruption.
Inspire confidence in your executive team with science-backed risk action plans
When you quantify what in your supply chain is actually at risk, you can bring better recommendations to your executive team and make better decisions. With a science-backed, AI-supported approach, you can say to your executive team, “I know where the most revenue is at risk, what we can do about it, and how to create an effective contingency plan that will protect what matters most.”
Supply Chain Prescriptions can help you quantify risk, analyze trade-offs, and help you ensure that your supply chain’s performance remains consistent.
More resources and solutions for supply chain risk management
Mitigating supply chain risk is increasingly an important topic that one article alone can’t fully capture. Here are more resources if you’re interested in learning more:
Learn more about supply chain risk management.
Download this in-depth whitepaper
Learn more about Supply Chain Prescriptions.
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