In a globalised world, businesses have come to rely increasingly on supply chains; complex groups of organisations and people which exchange goods and materials.
At the consumer end of the supply chain is the product that customers buy, and throughout the system is the interaction between businesses and the exchange of goods and materials.
As these supply chains grow, they can cross countries – making them subject to an increasing number of risks.
These risks threaten supply chain disruption via a number of factors, and these can derail business. These factors range from natural disasters and political upheaval, to mundane factors like adverse weather.
Achilles, a supply chain risk management company, has found that disruption in manufacturing industries can cost each business in the chain as much as £105,000.
These costs arise from a number of issues – either internal or external – and for the most part, these costs are incurred through avoidable risks. Vulnerability to cyber-attacks is one example of external risk, while inaccurate forecasts are an example of internal risks.
Supply chain disruption can either be chronic or acute. Acute disruption is the type brought around by geopolitical instability or natural disasters; chronic disruption is more problematic.
Chronic disruption can be a symptom of a problematic relationship along the supply chain (called “variable supplier performance” in the Achilles report). Long and costly delivery times, for example, or other operational issues can be the result of a bad business-to-business relationship.
But the theory behind supply chains dictates that they should be able to adapt to disruption, mitigating damage. Business suffering from chronic disruption, however, are the ones which unable to adapt. Don’t let it reach that stage; react and resolve.
Younger businesses (i.e. start-ups) are much more vulnerable to supply chain disruption, while mature businesses with established supply chains and procedures are more resilient.
This is logical, but it doesn’t mean that smaller business should suffer, as you can take lessons from other success stories and develop a strategy.
There are several ways to try and counter supply chain disruption, but reactive management is the most basic, while the most advanced is dynamic adaptation.
Reactive management offers limited co-ordination or integration – meaning that disruption is rarely considered and not easily dealt with. Dynamic adaptation offers a comprehensive and strategic approach.
Reactive management involves the lowest possible level of co-ordination between suppliers and partners, low visibility over the whole chain, and imbalances in your inventory.
This is an unsustainable approach which could lead to chronic disruption. A failure to recognise and resolve supply chain issues means that these problems become entrenched, raising more problems over the long term.
If this is the model you currently have in place, you should be looking to improve relationships across the chain as well as improving your visibility (which means being able to track consignments as they move from one link to the next). By adapting and improving your chain, you will move towards an advanced dynamic model.
Car manufacturer Nissan is a great example of how advanced dynamic adaptation can minimise risk of disruption; the company “leveraged a regional, decentralised supply chain structure.”
Nissan’s UK factory in Sunderland sources more than £2.5bn worth of parts from UK suppliers, avoiding disruptions (such as long delivery times and price fluctuations) that would arise when sourcing products from mainland Europe or further afield.
Nissan also provides a good example of risk management processes. The company focuses on “identifying and analysing risks as early as possible, planning and rapidly implementing countermeasures” which allows them to outperform competitors, according to PwC.
The clustering effect can help you to avoid disruptions, too. A local supply chain offers improved visibility as well as the opportunity to forge better working relationships with your suppliers.
This follows the examples set by Nissan and Toyota, whose suppliers cluster around the main factories to improve efficiency. Clustering also offers better opportunities for networking, growth and sourcing new employees.
Looking forward, the Harvard Business Review argues that the use of Blockchain in supply chains could create new standards of accountability and supply chain security. This can be seen as an example of proactive risk management (for more information about Blockchain, click here).
Ultimately, supply chains are susceptible to disruption from external and internal risks. But these risks can be minimised.
With adequate risk management processes, you can implement contingency plans and have a proactive strategy in place which will allow the wheels of business to continue turning.