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How to build a more Risk-Resistant Supply Chain?

31 January 2019

Today’s dangers and disruptions need efficient new solutions; increasing supply chain visibility is one of them.

The Business Continuity Institute (BCI) Supply Chain Resilience Report 2017 showed that the top three causes of supply chain disruption are IT and telecommunications outages, cyber-attacks and data breaches, and loss of talent, all of which affect organisations regardless of region, sector or size. Other eye-opening figures from the report:

  • 69% do not have full visibility of supply chains
  • 51% of losses were uninsured 
  • 65% of firms surveyed experienced at least one supply chain disruption
  • Disruptions costing more than one million euros have increased from 9% to 23%
  • 26% of firms have no continuity arrangements in place to deal with supply chain disruptions

How can today’s companies mitigate supply chain risks? What can they do to avoid the potential costs of supply chain disruption and ensure sustainable growth and prosperity? Some of the steps that can be taken include improving supply chain visibility, identifying supply chain vulnerabilities, developing risk mitigation strategies, diversifying suppliers and optimising safety stock levels to ensure continued production capabilities, proactively addressing cyber threats, and strengthening collaboration and communication with partners. 

How advanced analytics can diminish risk

Analytics is an increasingly effective tool in addressing supply chain vulnerabilities. Josh Green, CEO and founder of Panjiva, a comprehensive information source for the global trade community, speaks about two recent “leaps forward” in analytics: “The first was simply awareness — supply chain managers began to understand they could and should make use of data, just as so many other business functions have.”
He continued: “The second was the rise of machine learning as a tool for organizing data. There is a lot of insight to be gleaned from data, but the problem is that supply chain data is, generally speaking, a mess. Machine learning techniques put us in a better position to organize data, so that we have a better shot at finding the useful insights.”
Analytics can help increase visibility and provide deeper insights into the entire supply chain, improve overall efficiency, better predict customer needs, speed up reaction times, and, of course, better assess end-to-end supply chain risk.

The role of insurance in sustainability

When it comes to the challenge of supply chain visibility, Nick Wildgoose, Global Supply Chain Product Leader for Zurich Insurance, is emphatic: “It is more important to properly understand your critical suppliers – those responsible for the biggest proportion of your profits. It still shocks me when I speak to procurement teams in some of the world’s largest companies, and they admit they have never checked out the natural catastrophe exposure of their key suppliers. They might be reliant on a single site in South-East Asia for 30% of their production, without ever having checked out the likelihood of a flood or an earthquake occurring there.” 
If companies cannot maintain continuous operations or finance their losses after an accident, they’ll fail. Although insurance can’t keep accidents and subsequent disruptions from occurring, it's a crucial source of indemnification for losses if and when insured events do materialise. 

The importance of proactive risk management

Gary Neights, Product Manager at Elemica, states that “With an increase of natural disasters, cybersecurity breaches, unpredictable socio-economic factors and fluctuating customer demands, businesses need to be prepared to handle almost anything,” including losses that may include supplier and customer bases, production, distribution, warehousing and logistics facilities, transportation lanes or modes, members of their workforces, and even intellectual property.
“With so much potential for devastating loss, businesses today need to be proactive, rather than reactive in their risk management priorities and practices.

Unless the process is continuous, businesses will never be in front of the risks; they will always be in the reactive position, playing catch up, and dealing with the damage”, concludes Neights.

Four concrete steps toward mitigating supply chain risks

  1. Detect supply chain vulnerabilities with a business impact analysis. By identifying your key business processes and the resources and activities you need to run your business, you’ll be able to assess the long-term and short-term factors that may pose threats and risks to the success of your supply chain and the scenarios through which these threats, risks and vulnerabilities may evolve. Focus your efforts on those that could impact your bottom line the most. This will enable you to respond swiftly and effectively when disruptions occur.
  2. Evaluate and monitor your new and existing suppliers. A thorough evaluation of the capabilities, resources, reputations, and financial health of your suppliers is vital to understanding your exposure to supply chain risk, and proactively mitigating that risk. Closely examine your suppliers’ cybersecurity processes and policies, especially with regard to their internal IT security procedures.
  3. Ensure adequate inventory with multiply supply lines. By reducing your dependence on single supply lines, the risk of disruption will be alleviated. Relying on supply from a single vendor, country or region can be disastrous. For added security, create relationships with alternative primary and secondary suppliers from different geographic regions. Ensuring you have a diverse base of suppliers can save your business if a given country or region can no longer meet your needs.
  4. Collaborate with suppliers and other partners. Sharing information, integrating activities and implementing input between you and your supply chain partners is key to building strong relationships that increase reliability and ensure your supply chain risk plans are followed.

By implementing these and other measures, you can make your supply chain more resistant to risk. Ask yourself: if your company suffered a significant disruption today, how confident are you that your supply chain could weather the storm?

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