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Leveraging Early Warning Systems to strengthen Supply Chain Risk Management

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With roughly 90 percent of the world’s goods shipped by sea, the Suez Canal is one of the most significant pinch points along global supply chains. Its blockage rippled through the supply chain across the world. The BBC reported that 369 ships were stuck waiting for the ever given to be refloated. Not only did all those ships have delayed cargo, but the disruption curated a backlog of cargo that continues to be felt today at warehouses, ports, shipyards, retail locations, and ultimately, by customers.

Supply chain management issues have become a hot topic of discussion for people worldwide as shipping delays and fundamental product availability issues are becoming boundless. Everyday shopping has been impacted, and we have seen increasing tussle as supply networks and retailers have struggled to keep up with demands.

In the last couple of years, various enterprises have been rocked by unforeseen supply-chain vulnerabilities and disruptions, leading to recalls costing hundreds of millions of dollars in industries ranging from pharmaceuticals and consumer goods to electronics and automotive.

With millions of dollars in lost revenue, reputational damage on the line, and unexpected mitigation costs, it's no surprise that supply chain risk management has become a frequent board-level discussion topic in the present scenario for many organizations.

A common theme is at the heart of these crises—the lack of robust processes to identify and successfully manage growing supply-chain risks as the world becomes more interconnected. According to a survey, nearly 98% of senior-level decision-makers said their organizations experienced supply chain disruptions. The sudden change of events has put supply chains' risk management strategies to the test, reduced demand for ocean freight, and impacted manufacturing output.

While predicting future supply chain disruptions is not necessarily impossible. And yet, with digital transformation in place, we can start to identify vulnerabilities more accurately and more quickly in the extended supply networks and plan for disruptions to lessen the impact on businesses.

Developing an Early Warning System

In the current scenario, supply chain management leaders know that current supply network risk data is widespread. Existing processes for gauging new suppliers and assessing risk are too inconsistent and often too trifling to unravel the hidden risks. Ongoing supplier reviews are too unusual and often rely on outdated information. Too little visibility into suppliers of critical components and materials leaves too much exposure to the complex interdependencies of the extended supply networks.

So, how are leaders planning to uncover hidden risks in their supply networks and become more proactive in identifying and managing disruptions? Based on these significant concerns, here are a few of the actions that we'll see more of in 2022 and beyond.

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1. Taking a granular view of supply chain risks

Numerous factors can contribute to supply risk management. Financial strength is accepted as a universal risk indicator – if the supplier is struggling financially, they pose a risk to the long-term capability to support the business. Cash flow challenges may lead to a dip in service and quality levels, an inability to reinvest in the business, or a lack of future innovations that help buyers and suppliers. It is no surprise that this is one risk indicator that most organizations review for new suppliers.

A growing emphasis on location-based and operational risks is expanding the set of factors that procurement and sourcing teams are evaluating, especially the geopolitical events and trends; restrictions, changing regulatory, and sanctions lists are all causing an expansion of risk indicators for suppliers assessments. All of this is bringing procurement teams to take on a granular view of supplier risk. And leaders are looking out at a new set of solutions to automate the compilation, collection, and scoring of this info in a single, encompassing view of multi-factor supplier risk.

2. Stability in new supplier evaluation

Incomplete survey responses, a narrow focus of questions, a lack of validated data, and time. All this compounds the challenges of thoroughly reviewing every supplier, especially as organizations grow their businesses and shift their supply chains. Teams are nudging to keep up with the pace of business requirements for new sources of supply. All too often, different teams are taking frantically different approaches to evaluating supplier risk.

Expanding the preceding breadth of risk indicators can help drive a more consistent approach to evaluate suppliers for vulnerabilities and risks to the organization. But extending that approach across the entire organization can only be achieved if the risk scores and underlying data are readily available and embedded into the supplier assessment process. This will enable the adoption of a more consistent and thorough review of all suppliers without increasing the workload on individual evaluators.

3. Delving deep into third-party supplier relationships

In a recent report, 40% of COVID-19-related supply chain disruptions were traced to sub-tier suppliers. Currently, the extended supply network is gaining increased importance in gaining visibility into supply risk management. Identifying and tracing third-party suppliers has long been a challenge for supply chain teams. But the recognition that a failure or disruption anywhere upstream in your supply chain management can cause devastating effects, has become all too clear during the pandemic, as buyers increasingly felt the impacts of - material shortages, work slowdowns, and logistics challenges far removed from their businesses.

With new supply network mapping initiatives gaining steam, new technologies identify and map global buyer-supplier-partner relationships. Present complex interdependencies between supply partners need a deeper and broader view of trading partners to understand where issues exist that could impact supply chain management.

4. Constant monitoring and ongoing evaluation

Supplier performance management has been fairly a real-time pursuit, mainly - the data on order accuracy, on-time delivery, quality, and responsiveness is relatively easy to access using internal operational data. We're witnessing a shift towards continuous monitoring of supplier risk factors to gain a real-time view of potential vulnerabilities and issues. Rather than focusing on annual reviews of crucial suppliers, or those who have struggled in the past, procurement teams recognize that it's the supplier who is seemingly doing fine that can cause a disaster with little warning.

Combine an extensive view of risk indicators with an in-depth view of risk throughout the extended supply chain management network. Add continuous monitoring of that multi-tier, multi-factor risk indicators, and you get an early warning system of real-time disruptions that gives the ability to mitigate those risks proactively. For instance, a Geopolitical crisis or a catastrophic weather event endangering geography densely populated by raw material suppliers – the earlier you examine, the faster procurement can respond and find alternatives.

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The Road Ahead

Global supply chains are irreversible, as are the supply-chain risks that globalization has brought with it. These are some exciting and challenging times to be in the supply chain.

Now more than ever, contingency planning, supply risk management, and supply continuity initiatives are evident, significantly crucial, and generating executive-level commitment and funding from companies. At Polestar Solution, our experienced consultants suggest that organizations build robust programs for managing both known and unknown supply-chain risks to survive in this cut-throat competition.

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