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Managing supply chain risk – Lexology

In the days following the fateful lockdown announcement in March 2020, when the Prime Minister told us all that we must stay at home and that certain businesses must close, we all saw first-hand how fragile our supply chains can be.

The news coverage told endless stories about people queueing for essential items for hours, only to be faced with row after row of empty shelves.

While we are still very much in the grip of the coronavirus pandemic, now half a year later, we are still seeing rolling news coverage of supply chain fragility, albeit now based on high-demand essential front line items rather than missing toilet paper and a lack of flour for our banana bread. The coronavirus pandemic has starkly highlighted our reliance on our extended supply chains, and the global nature and connectedness of modern business is more visible than ever before.

With a little distance and perspective from at least the initial stages of the crisis, is it now perhaps time to assess what we have learned and what is still to be done.

Supply chain risk

It is now clear that many businesses have had to adapt to a new way of thinking in relation to their management of supply chain risk. In some cases for the first time, businesses are having to think about the further reaches of their supply chain to assess whether there is a dependency. It’s no longer sufficient to rely on the goodwill of a key supplier, what about their suppliers? And so on down the chain.

Against a backdrop of potential future localised restrictions, irrespective of geography, do we fully understand the impact both on our operations and of the suppliers we rely upon? To ascertain resilience, this requires a view of the supply chain that is dynamic and fact based. Any review should start with some consideration of your supply chain to the nth degree. For example;

If this service / supply were to suddenly stop, is it a dependency on my future operation?

  • How long could my business continue without any further supply?
  • Could I insource? Over what time / cost? Can I do this without disrupting customer operations / internal operations?
  • Does my business rely on a supplier being able to ship locally, nationally, internationally?
  • What is the health of the supply market, locally, nationally, internationally? What margins do my suppliers operate within? How long would it be before a disruption event to a supplier would be critical to my business?
  • Is my supplier dependent on further supply (to the nth supplier degree)?
  • Do I understand the sustainability, carbon footprint and ethical nature of the supply?

The answers may lead to some difficult messages from our current suppliers; it is an unfortunate truth that many may not survive. Of those that do, they themselves could face disruption or reduced service in the months and years to come.

Transparency and sustainability

Starting to assess the responses to the above questions is a starting point, however effective risk management cannot be a single point in time exercise. When we are considering the risk against a small group of suppliers, it can perhaps be left in the hands of a manual process or an Excel spreadsheet. However, many businesses have suppliers in the tens or even hundreds of thousands. Managing an increased and increasing level of visibility across a supply chain becomes a Herculean task.

It is also the case that assessing the failure risk of supply is only a single dimension. For example, consumers increasingly want more transparency in the products they buy in terms of sustainability, carbon footprint, and the ethical nature of the supply. Organisations can no longer bury their heads in the sand when it comes to the length and breadth of their supply chain. Consumer demand concentrates the mind – people are increasingly likely to take their money elsewhere if the brand values are opaque to them, and this obligation doesn’t stop at the first tier of the supply chain.

Visibility

Where all this takes us to is an increased reliance on data. At this time when many organisations have taken a hit to their bottom line in dealing with the impact of the pandemic, or in planning for Brexit, it is a difficult ask for them to increase spending on the technology to support their buyers. However, many buyers and planners are going to rely on data to deal with the current and emerging risks to their supply chains.

Many organisations have methods to manage their supply chain. Those at the forefront of these risks are investing now in blockchain supported transparency and traceability, AI to manage supply volatility in terms of both price and availability, and often more traditional technologies to track supply failure metrics through industry benchmarks, financial assessments and risk assessments.

However, there is no point in collecting data if it is not in the hands of the people who need it to make the buying decisions, to inform risk management strategy, or to communicate with the consumer. A new question to ask is not ‘what are my risks?’, but ‘where are the gaps in my knowledge?’. What do I know about the nature of these gaps and what are the indicators when things are heading in the wrong direction. What do I need to do to bring these tools together and give my organisation a fighting chance of managing these risks by investing in the right technology infrastructure?

Changing demand

Supply chain risk is not new, is not limited to the pandemic or to Brexit, and is certainly not going to go away. The very visible nature of some recent supply chain failures has brought these risks onto the radar of many consumers and this, added to the growing demand for transparency in sustainability, is the tip of the iceberg. If organisations decide not to invest in technology to help supplier managers manage and mitigate their supply chain risks, this could, in itself, be accepting a risk with a significant cost.

This article first appeared in Digital Innovation

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