So often when considering Supply Chain Management issues, organizations focus on the cost side of the equation. While cost is obviously an important part of business, and a necessary focus to remain competitive and support growth, it is not the only factor in effective Supply Chain strategy.
Of equal importance, and some would argue of greater importance, is risk to the business, and efforts to mitigate risk to allow the business to prosper over the long-term. While the many varied aspects and disciplines of the business can claim importance where mitigation of risk is concerned, few are as critical as in the Supply Chain arena.
There is much press ongoing today focused on international trade, and what appears to be looming trade wars on the horizon as the US, under President Trump, continue to push the envelope as the aggressor in the abolishment of trade agreements with their various trading partners. While this certainly poses supply chain risk to many businesses, risk mitigation strategies are not solely intended for major times of crisis, such as we may potentially see in the near term.
Risk mitigation needs to be part of the organizational strategy on an ongoing basis, and can deal with a whole host of potential issues that could surface without a minutes notice. Risks such as suppliers closing their doors, insufficient port capacity on certain transportation lanes, anti-dumping findings from government investigations, or sudden price increases on certain commodities are all “business as usual” things that can come up from time to time. Successful businesses anticipate these potential risks, and have strategies and processes in place to deal with them, should they become a reality.
A few weeks ago I was having discussions with a long-term supplier who has proven their ability to accept purchase orders, and ship product in a matter of days. As a result of this stellar level of performance, the organization carried minimal levels of inventory, with extremely low reorder points for inventory replenishment.
Through these most recent communications, we became aware that their lead times had grown to over three weeks. As a result, an immediate change to inventory replenishment processes were put in place, combining longer notice to suppliers of upcoming demand (i.e., placing orders earlier with adjusted lead times), and carrying extra safety stock to compensate for the increased lead time.
This is but one simple example. The key point to remember is that organizations need to be proactive when it comes to supply chain risk, and to develop supply chain strategies and risk mitigation processes long before issues arise. Failure to do could result in the risk of being unable to fulfill customer demand, sudden shifts in price structures, and potential loss of business.