Every business needs to be prepared for unexpected and high-risk events, especially when managing its supply chain. Developing a resilient supply chain will allow your organization to quickly respond to and recover from potential interferences, creating a swift return to its original state or transition to a new one. Not only does this resilience make for a quick recovery, but it will also increase customer service, market share, and financial performance, ultimately satisfying both your organization and your customers. So, how do you build a resilient supply chain? There are five key steps to achieve this:
1. Understand the Risk
The first step to combatting risk is to understand and acknowledge it. With each supplier your organization works with, there is a risk associated. It would be best to consider these risks, how significant they are to your organization, and the likelihood of their occurrence. Once you understand these risks, you can begin to take proactive steps to defend against them. One of the most prevalent supplier risks is financial, so be aware of potential tax changes, fluctuating exchange rates, and market and price changes. Also, keep in mind the risk of delivery issues. It could be affected by unavoidable problems such as natural disasters, government policies, and economic issues, so it is crucial to have a plan. Regarding compliance, ensure that all suppliers are compliant with your industry’s standards and regulations to avoid fines or legal complications. Additionally, consider your supplier's image by checking if your suppliers’ company morals align with your own, such as ethical working conditions, moral business practices, and professional behavior. Finally, consider the risk of receiving quality and performance less than expected or promised.
2. Communicate From the Outset
When working with new suppliers, it is necessary to set expectations from the beginning to understand your mutual goals. Consider expectations regarding inventory and capacity buffers, multisourcing, or nearshoring. Dialogue between your organization and its suppliers should be encouraged to communicate to management if there is ever a question or complication. Opening a communication channel will develop a sense of trust and confidence in one another, which will minimize barriers in the future. Identify potential risks to your supplier and ask them to talk you through their response. If a risk does arise, you will have already communicated possible solutions and implemented the best course of action. Additionally, this may provide suppliers with an opportunity to discuss any risks they may have considered. While creating an early communication channel may require more preparation on your part, it will equip you to have early-stage management discussions.
3. Take the long-term view.
Be proactive rather than reactive. When building your supply chain, focus on your long-term goals so that you can align your current management with future plans. Why is it better to be proactive? Reactive behaviors that focus on just-in-time procurement can increase the risk of supply chain disruptions. It is also essential to consider that what may save you money in the short-term could cost you considerably in the future.
With this in mind, make sure that you are not overpaying for possible risks, so ask suppliers to be transparent. Some long-term improvements that you should consider are efficiency, quality, and stability. To improve upon efficiency, evaluate how you can be minimizing waste in terms of materials, money, hours, delivery time, and more. You can achieve waste reduction through the management of production, inventory, transportation, and logistics. By sharing updated inventory data with your supplier, you can quickly replenish inventory to keep up with demand. For quality, ensure that the product and customer experience are as positive as possible. Utilize supplier and customer feedback to stay updated on the quality of your products. Lastly, you should maintain a strong communication channel with your supplier to receive frequent updates on risk and supply chain status for improved stability.
4. Do the Analysis
Invest time into supplier analysis – while your supplier should be performing their own risk analysis, they may not be. To ensure a resilient supply chain, perform these checks on your own. A supplier risk assessment is essentially an audit of their processes, policies, and financial standing to determine how much risk they pose to your organization. Following the establishment of their risk level, act accordingly, and request remediation from the supplier if necessary.
In addition to risk, there are other essential factors to think about when assessing a supplier. Consider these key items to address with your supplier: risk, production capacity, performance, quality, and environmental impact. Questions to identify these items include: Are they aware of and working to minimize their risks? Can they scale production in response to your production cycles? Can this supplier perform to your standards and handle your organization’s typical functions? Does this supplier maintain the industry standard of quality? Do they meet your quality expectations? Do they participate in sustainable business practices and attempt to reduce waste?
Now that you know what to look for, it’s time to complete the analysis. To ensure a successful supplier assessment, begin with outlining a schedule. In this, you should clearly define the required tasks and deadlines desired from your analysis. Next, provide a questionnaire. Using a brief questionnaire, you can gather factual and subjective data to understand your supplier's operations better. Once completed, confirm the data collected from the questionnaire while reviewing quality control strategies and procedures. To make sure that you evaluate the right staff, consider if you will need upper-level management present to request their presence in advance. Throughout this process, remember to be courteous, provide support and recommendations where it is due but remember that a strong working relationship heightens productivity, setting an example for mutual respect.
5. Evolve Your Approach
Problems will inevitably arise within any organization and its supply chain but how you respond to these dilemmas allows your company to recover and grow. Make sure to learn from your mistakes, understanding what caused the problem and how you resolved it. You can then use these lessons to create a best practice database and include these practices in future management plans.
When evaluating a past problem, consider; Is this a recurring issue? Was this complication foreseen? Could it have been avoided? How long did it take to communicate the error? Was there a plan in place to resolve it? How long did it take to resolve the error? How can we avoid this in the future? Understand your most significant weaknesses and which are arising as reoccurring risks. Use this information to improve your supply chain and prevent it from occurring again.
A resilient supply chain is imperative for an organization to flow smoothly. By practicing strategic actions, you can minimize risk and create a strong relationship between your organization and its suppliers. While this year has reminded us that we cannot plan for all risks and complications, it is your job to put in place a system prepared to move quickly and efficiently to handle unexpected hurdles. An organization's customers should be its absolute priority, but operations between an organization and its suppliers must be well-managed and cohesive to deliver timely and quality products. This approach allows for flexible management of your suppliers, strengthening weaknesses and increasing efficiency while allowing your supply chain to be as resilient as possible.