Supply Chain Risk Mitigation is the process of predicting and preparing for the probability of variables which may adversely affect the Supply Chain and the methods of reducing those risks. A systematic approach, including visualizing risks and defining metrics, is important to the mitigation of risks. An essential key to risk mitigation is to ensure that senior management understands and is supportive of the effort to mitigate the significance of supply chain disruption. Approaches to this effort:
The initial strategic effort is directed at identifying and mapping the entire supply chain from the furthest point (e.g. a chip manufacturer or a COTS software producer), to the integrator (e.g. a hardware manufacturer using chips or a software suite producer using software from many points), to a vendor providing a completed product to a customer. A wider and deeper version of this identification and mapping effort would include: all supply chain tiers including distributors, carriers, ports, transportation hubs, warehouses, etc. This effort alone is challenging, difficult and time consuming. It is a continuous process because the points in the supply chain that may be disrupted and affect the customer are constantly changing.
After identification and mapping the supply chain, the next effort is assessing the impact on the customer should a point in the supply chain experience a disruption. The key here lies in identifying and accessing high-risk areas and prioritizing their risk-level potential. A model might be used to assign, on a 1 to 10 scale, a number addressing: Seriousness of Consequences (to your organization), Likelihood of the Disruption Occurring (at a point on your supply chain), and Likelihood of Early Detection (of the disruption). High scores indicate High-Risk levels which provide a priority rating for each supply chain point that requires risk mitigation planning.
Risk mitigation plans are not designed to eliminate or avoid disruptions of the supply chain. The goal of a risk mitigation plan is to create an operational, contingency, recovery blueprint that can be implemented when a disruption is detected or occurs. The initial effort associated with creation of a risk mitigation plan starts with and builds upon the data acquired in the strategic effort. The supply chain identification and mapping effort defines the who and where of the points on your supply chain. The priority rating determines which plans should be addressed first.
Building a risk mitigation plan begins with vendors with high priority ratings and additional questions - how dependent is the supplier on your business, are they on the government debarred list, are there suits, liens or judgments filed against a supplier, do they have OSHA violations, verify information? Negative answers to these questions (very dependent, debarred, numerous suits, OSHA violations, low Dun & Bradstreet score) should immediately require the creation of a risk mitigation plan.
Probably the most important elements of a good risk management plan are vendor involvement and transparency. Creating a good, tight relationship with a vendor shows your confidence and trust in the vendor and encourages that vendor to push good supply chain management and mitigation processes and procedures further down the chain. And that ultimately affects the health of your supply chain.
A good risk mitigation plan contains some of the following: a financially strong, competent world-class supplier; a regular reevaluation of suppliers, as business strategies often change over time; awareness of a second domestic source that can be quickly ramped up; documentation of potential alternative suppliers and continual research for new vendors; use of visibility tools (IoT devices, RFI tags) to closely track global shipments; advantageous use of early warning systems (hurricane alerts) so that risks caught early can be more easily managed; use of insurance to mitigate risk where appropriate; creation of a reserve inventory by forward buying or hedging of critical items needed to support the mission; establishment of a crisis team that is responsible for making decisions and communicating those decisions throughout the supply chain .
Finally: risk mitigation is a continuous and ongoing process and strategies and plans should be examined quarterly to keep the information fresh and relevant. This is a difficult and time-consuming task so an essential key to risk mitigation is to ensure that senior management understands and is supportive of the effort to mitigate the significance of supply chain disruption.