Supply chain risk has jumped to a nine-month high, as risks increased in Q4 of 2014 in Africa, Asia, and Latin America, according to the latest report from CIPS Risk Index.
Additionally, lower fuel and commodity prices have allowed companies to grow the complexity and length of their supply chains, leaving them more susceptible to risks, the report said.
The piece of advice in report that caught my eye was this from John Glen, CIPS Economist and Senior Economics Lecturer at The Cranfield School of Management:
“To mitigate the challenges these pressures pose, strict adherence to best practice is essential for procurement managers with supply chains reaching into growing risk areas, such as Australia and Brazil.”
It is critical that supply chain managers remember that supply chain risk cannot be avoided, but it can be weighed, considered, and balanced.
It is possible for companies to gain visibility and intelligence to manage risk efficiently and effectively. Why is this valuable for your company? Because if you’re better prepared to respond to risk events than your competitors, supply chain risk can become an opportunity for competitive advantage and differentiation.
How are you alerted to risks to your supply chain today? Do you have to wait until your supplier or distributor lets you know something happened?
In early 2005, I was working for a tier 1 automotive supplier, delivering JIT (just-in-time) product to vehicle assembly plants, with my source plant in Southern China and sequence center in the US Midwest. The product would flow from China by ocean to Long Beach, CA and then move by rail to Chicago where it then traveled by truck to my center. My company sourced a freight forwarder to handle the moves.
As I reviewed the assembly plant’s requirements one day, I noticed a near-term shortage that needed to be covered by an impending delivery from China. I called the freight forwarder and requested an update on the delivery. It was then that I was informed that last week heavy rains and subsequent mudslides had blocked the primary rail line and the train had to take a “more southerly route”. That route added a week to the delivery time.
Had my freight forwarder told me a week ago that the train and delivery would be a week late I could have ordered an air shipment at economy service. Instead I had to expedite the shipment at a much higher rate of service.
I learned important lessons: 1. long lead times and fluctuations in demand make a mess for JIT deliveries. Visibility to risk events (like mudslides) in relation to the things that are important to me are paramount. 2. Critical infrastructure like rail lines, airports, and ocean ports are assets to my supply chain and I need to “listen” to them for impact to my shipments. 3. My relationship with my freight forwarder was weak and I had to strengthen our communication. I needed to be on his speed dial.
|Enterprise risk visualization platforms empower you to map |
your supply chain, track risk data in relation to the things you
care about, and receive alerts when risk has the potential
to impact your supply chain.
Tools are available to support companies as they take command of supply chain risk. Enterprise risk visualization platforms empower you to map your supply chain, track risk data in relation to the things you care about, and receive alerts when risk has the potential to impact your supply chain.
Early notifications about potential problems give you more time to respond, more options to choose from and often those options come at a lower cost than expediting critical parts or materials to avoid a plant shut down.
What do you think of the CIPS Risk Index report? Are lower costs leading you to extend/add complexity to your supply chain? What steps are you taking to ensure you are prepared to respond to risk events? Let me know in the comments, or email me.