When many business leaders think of resiliency, they start thinking about disaster recovery plans and how to prevent IT system downtime. However, there is more to resiliency than developing a strategy for keeping things running in the event of a hurricane or network outage.
Supply chain management considerations
One of the issues that comes with an ever-expanding network of partners is that there are simply many more areas that can be disrupted. This has become a prevalent theme in supply chain management frameworks - a market fluctuation that raises costs for a supplier could impact everything from the actual cost of service delivery to the final price offered to customers. As a result, it is important to develop comprehensive risk management strategies that go beyond the obvious disaster and that consider the entire supply chain rather than only the factors an organization has direct influence over. FM Global vice president Stefano Tranquillo recently identified a few risks that almost every company will need to address:
- Market influence: What conditions are suppliers operating under? How will problems among partners affect product and service delivery?
- Business practices: How might business partners' practices affect the overall supply chain? Can these be improved?
- Environment: What economic, social, governmental and climate factors will impact the supply chain?
- Warehouse management: Do all business partners have sound loss prevention strategies?
These questions are a good starting point for evaluating supply chain resilience, and such considerations could form the framework for a more stringent partner vetting process. As Tranquillo noted, it's a good idea to create business continuity requirements for suppliers to ensure that they manage risk to an acceptable degree.
"Vulnerability is no longer an option," Tranquillo wrote. "Organizations should view preparation for the next big disaster as a competitive advantage and ensure the same loss prevention practices are implemented across the entire supply chain."
The impact of supply chain failures
While it is no secret that supply chain disruptions can have far-reaching ramifications for the organization experiencing them, such problems can have a larger scale impact. One recent example of this comes from the manufacturing industry, in which supply chain management failures have led to increased insurance premiums. As supply Chain Digital contributor Joseph Wilkes noted, the prices of specific types of coverage, such as business continuity insurance have gone up significantly as a result of events ranging from product recalls to political unrest.
"With supply chain upheaval becoming more prevalent, some businesses have noticed that insurance premiums are rising and in some instances, cover is becoming more difficult to obtain," Wilkes wrote.
With insurers paying more attention to supply chain risk factors, organizations will likely face much more pressure to have visibility over their entire supply chains. Wilkes argued that getting coverage may require more robust documentation of business continuity practices. This means that organizations will face greater pressure to achieve visibility over their entire partner networks.
One way to achieve this visibility is to use supply chain management software that allows for profiles for each partner. This strategy allows organizations to rely on updated partner data and better respond to potential risk issues. However, minimizing the risk of disruption may also require an evaluation of current supply chain strategies. Wilkes used the example of a warehouse that is located in an area with political unrest - in this case, it may be necessary to temporarily shift operations to another supplier to ensure that there are no delays.
Furthermore, as organizations evolve, it may be that certain suppliers are no longer the best fit. One example of this is when business growth leads to more resources that can be reinvested. As Wilkes noted, a more expensive supplier may lend a greater degree of reliability or be able to deliver products faster than ones being currently utilized.
All of this ultimately means that supply chain visibility and real-time data are essential to respond to diverse operating environments. When something happens at one stage in the supply chain, organizations must be able to rely on more stable partners. Without insight into partner processes, this flexibility would be impossible to achieve.
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