You might say the coronavirus pandemic is bringing about a seismic shift in attitudes toward supply-chain risk.
To minimize future disruptions, many companies are revamping their business plans to include extensive risk-mapping capabilities. This involves a sensing mechanism that includes mapping, detection, and determining relevance. Because if businesses can detect when events are happening, they can proactively assess what they should do about them.
Being risk-aware and preparing for financial instability within a company’s supply base is like reinforcing your house when you receive an earthquake warning. Especially during the COVID-19 aftermath, a stable framework will help you weather financial blows, including supplier insolvency.
Continuing with the earthquake analogy, minor disruptions are like tremors — they might do some damage, but not enough to make headlines. You probably won’t be aware of any immediate effects. Disruption might show itself later, when your supplier says it had to close the plant for a couple of days, or workers couldn’t come in. All of a sudden, your shipment is late, or quality drops unexpectedly, caused by a tremor you didn’t know about.
Benefits of Supplier Mapping
Like earthquakes, disruption comes in all sizes and strengths, and you need to quickly determine whether it’s a major shock, tremor, or non-event. As the first step in preparation, enterprises can immediately understand the potential impact of disruption to the supply network, having done the hard work of identifying and visualizing. They’ve mapped out where assets are located, and ascertained the potential impact of disruption to those assets and to the supply chain.
Everyone hears about major disruptions, but without a sophisticated detection system, businesses aren’t always aware of the tremors. Early warnings ensure they’re not caught by surprise. As an example, the coronavirus crisis was such a major event that everyone knew there was going to be disruption. But questions remained around the unknowns: Which events will impact my business? And when? Because in the early days of the outbreak, if a company received a warning that COVID-19 cases were rising in a supplier’s region, it could act on this tremor before the full event hit. Especially in Europe and the U.S., shutdowns were often proceeded by rising cases and warnings from governments. Companies that were able to track the information and understand the intersection with their supply base were able to act to secure supply before their competition.
How will mapping help you understand your suppliers? Risk programs have traditionally focused on suppliers from a relationship perspective — do they have sound financials, are they compliant with my regulations, and are they cost-competitive? While that that information is fundamental, it falls short of what the company needs to know.
Mapping allows you to move from focusing on supplier-oriented risk to supply chain-oriented risk management. It provides details of:
Admittedly that’s hard work for your immediate tier 1 suppliers. But we’re seeing evidence that enterprises are recognizing that the importance of these insights doesn’t stop there. They’re working harder than before to achieve sub-tier visibility.
With mapping, you have a supply-chain view, rather than a supplier-based view. Most critically, this helps you answer the question: Can I get what I need, when I need it?
It’s important to view your entire supplier category. Switching from a single source to two or more suppliers doesn’t solve all your problems. If suppliers are all close to one another, your entire category could be wiped out by the same event, such as a flood. That’s the real power of the mapping exercise. It lets you be fully informed of physical location when you make your award decision.
Creating visualization ahead of an event is also powerful because it increases your rate of response. You can react quickly because you already understand the details of your supply chain. When you receive warnings, and you can rapidly marry location to your supplier; you have first-mover advantage. Customers tell us that when they have 5,000, 10,000 or 20,000 companies in their supply base, it traditionally takes days or even weeks to make this connection.
Preparing for Supplier Volatility
When adverse events happen, preparedness empowers you to react quickly. Coronavirus shutdowns have receded, but we know there are going to be ongoing aftershocks. Enterprises don’t know which of their suppliers are going to survive. In such a situation, they need the ability to sense and respond. Using artificial intelligence in combination with trending and analytics to track early warning signs on financial instability for each supplier is critical. Large businesses need technology; tracking thousands of suppliers manually is incredibly difficult.
During recovery from the coronavirus pandemic, you’ll especially need to watch for suppliers’ red flags of financial distress. In those cases, you need an increased level of vigilance as aftershocks continue. Even as businesses come back, they might no longer have customers with the same level of demand. Think of an organization that was barely making payroll before, and now sees its orders reduced. Will it survive?
When facing the complete loss of a supplier, preparedness gives you a sound category-risk strategy. Ideally, you’ve answered some key questions: What is the acceptable risk posture for this category? And have I taken an appropriate stance to react to supplier loss?
Preparedness options include:
Obviously, lots of companies were doing these things pre-pandemic, but many are now more serious about allocating some production to alternative suppliers. Lean manufacturing and just-in-time delivery make sense from a cost perspective, but must be balanced against the cost of risk. That involves rethinking your category strategy and rebalancing the scale.
Becoming a Risk-Aware Enterprise
My wish is that the coronavirus crisis will leave enterprises determined to become more risk-aware. That means factoring the cost of risk into decisions and daily jobs, and making it the responsibility of everyone in the company. Adverse events don’t happen one at a time. Hurricanes, civil unrest, and factory explosions will continue to threaten people and businesses, and the coronavirus hasn’t even gone away.
In response, enterprises may need more than a seismic shift. Some might require a paradigm shift — a fundamental change that makes their supply-chain risk strategies stronger. Risk can’t be an afterthought; it needs to be baked into your design and your award decisions. And it needs to be part of how you manage your supply ecosystem.
Bill DeMartino is chief customer officer and managing director of North America at riskmethods.
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