Supply chain disruption poses a major threat to the manufacturing and distribution industry. As supply chains become more complicated, and the number of moving parts involved continues to grow, there is simply more that can go wrong along the way. For manufacturers, one broken cog in the wheel (so to speak) could have devastating effects for their business, their employees, and their bottom line.
It’s common for us to run into manufacturers that have a longstanding, single point of supply on various raw materials and component parts. This creates risk in the event of an incident that forces that supplier to pull back on production or cease work altogether.
Lean production techniques have exacerbated this risk. While quality and cost often carry the day, there can be a shock to the system when a well-established supply chain is interrupted.
Over the last several years, global catastrophic weather events have become a common concern for businesses as well. Many manufacturers have found that they need to make rapid adjustments in sourcing when disaster strikes; this is often followed by delays in production and quality concerns, or worse – employment downtime and potential layoffs.
Increased costs result in loss of margins, top line revenue, and, ultimately, valued customers.
Risk management for supply chain disruption
Supply Chain Risk Management (SCRM) is a fast-growing component of complex business risk assessment, mitigation, and funding solution development that proactively prepares businesses for supply chain disruption and protects them when it occurs.
While there are an increasing number of technology solutions to identify and assess risk in this area, an organic in-house approach to risk management can be more effective, as it allows your risk manager to tailor their recommendations to your unique business model.
Thinking outside the “supply chain disruption” box
Many interruptions are caused by incidents business owners never saw coming, but can be mitigated with the help of an experienced supply chain risk manager. Have you considered…
- Political risk
- Import/export restrictions
- Service interruption
…and how that might impact your suppliers?
Supply chain disruption doesn’t just refer to an adverse effect on raw materials or components either. Expand your vision, spreading the net to include interruptions that may be caused by:
- Transportation/logistical arrangements
- Supplier certification delays such as CGMP, USDA, FDA or other regulatory re-cert hurdles
- Technology/IT services providers
- Banking/credit facility alternatives
- International supplier/global trade network reliance and alternatives
- Vertical integration in the value chain, including suppliers who take on sub-assembly as a value add
- Unknown supplier sub-contracting
Identifying risk is half the battle. Similar to Disaster Recovery Planning or Incident Response Planning, developing a plan of action before the event happens can significantly reduce time to recover and save your customers and your business.
At M3, we have experience facilitating risk assessment and audit programs, and can assist in the process of preparing your business for supply chain disruption. We can help evaluate your supply chain vulnerability and offer insurance as well as non-insurance risk management and mitigation techniques to move your supply chain risk resilience in the right direction.
Contact your M3 Account Executive or Risk Manager to learn more.
Ray Koenig is a partner and senior account executive at M3. He takes a corporate leadership role in structuring complex risk management solutions and program design for both public and private enterprises with national and international scope.