Planning Is Key to Minimizing Supply Chain Risk

by Granville Triumph

We live in a highly connected, global economy, with a company’s very survival sometimes depending upon the continued operation of businesses around the world. This fact has certainly been driven home by the COVID-19 pandemic. Business disruptions caused by quarantines and stay-at-home orders have affected organizations in virtually every industry.

PwC has conducted a series of biweekly surveys of CFOs regarding the impact of the coronavirus outbreak. In the first survey, conducted March 9-11, 54 percent of respondents said the pandemic could have a significant impact on their business operations, with 34 percent citing supply chain issues among their Top 3 concerns. 

That number had dropped to just 21 percent in the survey conducted April 6-8, as CFOs began looking beyond immediate disruptions to their long-term supply chain strategy. The most pressing areas of concern include developing alternate sourcing options (cited by 56 percent of respondents) and gaining a better understanding of suppliers’ financial and operational health (cited by 54 percent).

The COVID-19 pandemic is, of course, an unprecedented circumstance. However, supply chain disruptions happen frequently and often without warning. Events ranging from terrorist threats to dock strikes have inhibited many organizations’ ability to conduct business. Other factors that can adversely affect the supply chain include exchange rates, carriage capacity, shelf life, customer demand, fraud, accidents and natural disasters.

Contingency planning is key to reducing risk in the supply chain. But while processes aimed at reducing risk caused by supplier failures seem basic, few organizations have undertaken the analysis and built supply chain-oriented strategies to recover. “Specific plans to sustain supply chain operations are given limited coverage in most continuity plans,” according to a recent study conducted by the Council of Logistics Management.

Supply chain experts say the organizations best prepared to survive a disaster or business interruption are those that have a defined strategy in place and have accurately anticipated and planned for contingencies. Key elements of a supply chain continuity plan include:

  • maintaining a “safety net” of contingency inventory   
  • monitoring transportation entities and planning for contingent shipping arrangements  
  • observing product transportation paths and identifying potential bottlenecks 
  • developing plans to allow for acceleration of shipment 
  • implementing a crisis communications process with key vendors  
  • developing continuity plans to address in-house product receipt, inventory management and product shipment processes, with an emphasis on labor interruption and other single points of failure

Monitoring, event management, forecasting and simulation applications can be extremely useful in minimizing supply chain risk. In addition, there are a number of niche, stand-alone applications on the market that are designed to identify supply chain issues and help users resolve them quickly. In the most recent PwC survey, 26 percent of respondents said they plan to replace time-consuming manual tracking with automated tools to enable faster, more accurate decision-making.  

Risks lurk along the entire length of today’s complex supply chains, and identifying, quantifying and managing those risks are critical to business survival. While it is impossible to eliminate risk entirely, there are steps companies can take to mitigate risk while keeping supply chain costs as low as possible. 

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