Adapting Supply Chain Risk Mitigation in 2021
Global economic disruption throughout 2020 revealed one of the fundamental truths in supply chain systems — risk is constant in modern supply chains. Therefore, risk mitigation must also evolve to be better prepared for the next global disruption as an extension.
The effect of the pandemic on global supply chains
COVID-19 pandemic has been nothing short of an eye-opener. Most businesses worldwide operating under single-sourcing strategies faced the brunt of the pandemic as soon as it hit. With increased lockdowns and longer payment terms, production halted, leading to a cash crunch for organisations operating under multiple sourcing strategies.
That said, businesses do have a choice during this situation. They can either hope that another disaster will not happen anytime soon, or they can be proactive, work with supplier auditors, learn from their mistakes, and adapt to mitigate risk exposure for the next time. Unfortunately, natural calamities and socio-political incidents will again disrupt supply chains, and companies that do not adapt now will suffer in the next wave.
Adopting a 5-step risk management process
The easiest way to avert the devastating effects of another disaster is to identify, evaluate, and plan the risk mitigation strategies. The following steps are involved in this process.
1. Conduct a risk analysis
Identify and document the various types of risks that can affect your business. Then, for better management, segregate them into categories like management risks, technical risks, cyber-security, environmental risks, etc.
2. Design a risk management framework
Include supplier development freelancers to define possible scenarios to identify the impact level based on pre-defined parameters. Discuss the probability of each scenario, its impact, and its consequences on every facet.
3. Delegate responsibilities
Based on the brainstorming session above, distribute responsibilities to an employee or expert for setting priorities and managing each risk. A person who understands the triggers can better allot resources to handle the said crisis.
4. Design a preventative strategy
Create a plan to develop appropriate responses to each identified risk, sorting them according to their priority and impact on the organisation. Some problems can be completely averted, while some problems require a direct approach to mitigating their impact.
5. Map and diversify the supply chain
The modern approach to risk identification must be mapping out every aspect of a supply chain. Start by measuring the risk threshold that your business can handle and consult with your suppliers about the risks they can take on during a crisis. If required, hire supplier development freelancers to diversify operations and find more ideas.
In 2021, the need for clarity in supplier risk is paramount as businesses implement a more structured approach to risk monitoring. Proper arrangements for data consolidation, risk prioritising with the help of supplier auditors, and implementation of analytics will help them manage the complexities of handling international supplier networks.
