Understanding Risk in Your Supply Chain

Risk in Your Supply ChainJames Allt-Graham explores the risks today’s supply chains are exposed to, and the steps that should be taken before disruption occurs.

The effective operation of the supply chain is the lifeblood of many organisations. Ensuring that the supply chain delivers goods, services and information to customers cost effectively is vital.

Business interruption however is around every corner for most global supply chains. Whether it be from external failures (supplier disruption, unpredictable events such as natural disasters and social/political unrest) or internal system failures (such as IT systems and manufacturing and other processes) the financial impact can be significant if not mitigated quickly.

Understanding potential risks that may interrupt the performance of your supply chain can allow you to build risk mitigation strategies that will increase resilience and enhance performance.

The Contemporary Supply Chain

Today’s supply chain is very different from a decade ago. Many supply chains have undertaken significant change through a mix of technological change, new sourcing arrangements (often offshore), outsourcing and regulatory change.

This transformation from a domestic, largely manual supply chain to an international and highly automated supply chain can expose an organisation to risks not previously encountered.

Without understanding the potential risk landscape an organisation may be exposed to disruption that has not been adequately considered and mitigated.

Examples of supply chain redesign exposing new risks

The table below summarises some of the key shifts that are occurring in selected industries in Australia.

You can see that these shifts are helping organisations to respond to internal and external changes in their businesses. However, without adequate consideration of the new risk profile the organisation can be exposed.

Industry Shift from... Shift towards...
Retail Australian-based supply chain purchasing from local branded suppliers direct to stores. Some regional warehouses, limited IT. Limited direct purchasing from overseas. 
  • International supply chain, many services provided offshore, long lead times, own branded product.
  • High IT integration with suppliers.
  • Automated materials handling equipment in large distribution centres.
  • Replenishment via third party transport provider
  Additional risk exposure: 
  • Stock obsolescence
  • Costs
  • Risk of business interruption
  • Quality
  • Equipment / IT failures
Automotive Domestic suppliers, manufacturing and spare parts available from suppliers or import.
  • Total change in supply chain configuration with an import model and associated increased lead times
  Additional risk exposure:
  • Service levels 
  • Supply chain costs (LCL volumes for import)
E-Commerce  
  • Click and collect capabilities
  • Live inventory data across the network
  • Costs to serve
  Additional risk exposure
  • IT failure / website availability

 

By understanding the broad range of strategic and operational risks being faced by an organisation’s supply chain, risk mitigation and management strategies can be developed. These strategies can reduce the likelihood of interruption, reduce the severity and improve the recovery time thus protecting the organisation, its customers and suppliers. In addition a review can identify opportunities to improve performance, align processes, improve reporting, reduce costs and improve service.  

How to conduct a Supply Chain Risk Review

A Supply Chain Risk Review should develop a thorough understanding of the supply chain by using proven methodologies and workshops to consider the strategic and operation risks that could impact the business.

Opportunities to mitigate or reduce risk and improve performance should be considered using ‘insight led’ knowledge of better practices in supply chain.

Of critical importance to the success of a Risk Review is buy-in from key people within the organisation for the risk and performance improvements identified.

The final step in the review process is reporting and follow-up.

A Supply Chain Risk Review should achieve the following outcomes:

  • Identify key supply chain risks including causes and consequences
  • Prioritise supply chain risks
  • Identify risk mitigation strategies including commitment to change from key people in the business
  • Agree an action plan including what is to be completed, by whom, over what time frame
  • Generate a performance monitoring framework to ensure the ongoing identification and control of risks

If done well, by identifying your risks, your organisation should reduce costs, increase customer service and ensure that your supply chain is resilient and supports your organisation’s objectives. 

Whilst you may not be able to predict the next natural disaster or political coup, you can take active measures to understand where the risk in your supply chain lie, and take steps to minimise the impact of future disruption.

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Testimonials

"GRA helped us reduce inventories and improve operating cash flow by $12 million within 12 months whilst improving stock availability in stores. All the more impressive considering we were growing rapidly, but experiencing tough retail trading conditions at the time."

– Peter Birtles, Managing Director, Super Cheap Auto Group

Typical results

  • 20-40% inventory investment reduction
  • increased service levels ranging up to 99.9%
  • 10%-15% reduction in supply chain operating costs
  • 5%-20% spend management savings
  • the ability to fund business initiatives from operating cash flow (OCF) improvements
  • improved return on capital employed (ROCE)
  • a minimum 3:1 ROI (10:1 to 30:1 typical)