How can companies identify supply chain vulnerabilities to be better prepared for the future?
Supply chains have been hit hard by volatility over the last few years due to the pandemic and turbulent economic environment. Now, as economies are starting to settle and we’ve realized just how fragile supply chains can be, companies are ready to act.
Here are some best practices that can help companies better prepare for supply change disruption and risk.
Become More Agile
Companies have learned how valuable and necessary an agile workforce is—not only for responding to supply chain risk, but also for research and development, procurement, planning, manufacturing and logistics, etc.
Build a Culture of Risk Management
Companies that successfully managed supply chain issues in recent years all share one common denominator: a culture of risk management. Developing and maturing a management infrastructure that recognizes, prioritizes and plans for risks including supply chain and other disruptive events is important as ever.
Conduct Stress Tests
Since supply chain risk is a constantly moving target, companies should proactively conduct stress tests to determine if the current supply chain remains appropriate.
Create Supply Chain KPIs
Creating and communicating supply chain KPIs helps the entire organization understand the company’s performance. Key supply chain KPIs can include fill rate, inventory turnover and customer order cycle time. KPIs will help companies evaluate supply chain design and execution, as well as where to make necessary adjustments.
Identify Internal, Third-Party and Economic Risks
To truly understand their supply chain risks, companies need to conduct comprehensive vetting of suppliers, processes and facilities that test points of failure. They should also identify what critical inputs are at risk from shortages or price volatility.
Improve Supply Chain Management Systems
Since the pandemic, many organizations realized how limited the systems they use to measure and monitor supply chain vulnerabilities are, with few having direct visibility beyond direct suppliers.
In fact, a 2021 McKinsey survey of senior supply chain executives reported that just under half understood the location of their tier-one suppliers and the key risks those suppliers face, but only 2% could say the same about suppliers in the third tier and beyond – where most disruptions originate.
To address the issue, companies should consider developing systems and tools to monitor vulnerabilities beyond their direct suppliers.
Move Past Six Sigma and Process Optimization
Prior to the pandemic, six-sigma and process optimization drove most supply chains to achieve stability and minimize costs. However, the past few years show that companies will need to be much more agile and dynamic moving forward to respond to rapidly changing demand and vendor shortfalls.
While there is no one solution for supply chain risk management, a commitment to continued efforts that balance enhanced flexibility, productivity and quality while moving at the speed of customers will be the new status quo to prepare for long-term uncertainty.
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