Every supply chain faces threats from circumstances beyond the control of company executives; however, many businesses have risk management strategies in place to mitigate these potential problems. However, not all potential issues can fully be eliminated, and firms across the globe are facing an increased number of supply chain risks as their companies grow and their supply chains continue to expand their reach.
Risks are prevalent - and varied - in every supply chain. While some companies may be unable to procure raw materials due to political unrest in a region, others may be forced to halt production after a natural disaster limits their manufacturing capabilities. More companies may encounter limited shipping capabilities if a large storm hits, and other corporations may find themselves unable to keep up with demand after a particular product becomes unexpectedly popular. While these risks are all different, they all have significant impacts on supply chains and a company's ability to perform well and consistently increase revenue.
Executives increasingly worried
A new survey from Deloitte indicated that not only is the scope of risks increasing, but so are concerns from supply chain executives. While many corporations have measures in place to reduce risk, 45 percent of executives surveyed believe their risk management plans are only somewhat or not at all effective.
These problems can have a significant impact on companies trying to manage a complex or lengthy supply chain. The survey indicated 53 percent of executives think disruptions have become more expensive to rectify in the past three years, with those in the technology, industrial products and diversified manufacturing industries being more likely to have this opinion. Forty-eight percent of those surveyed thought the frequency of risky events had increased over the past three years.
"Supply chains are increasingly complex, and their interlinked, global nature makes the vulnerable to a range of risks," said Kelly Marchese, principal for Deloitte Consulting. "This increased complexity, coupled with a greater frequency of disruptive events such as geopolitical events and natural disasters, presents a precarious situation for companies without solid risk management programs in place."
Working around potential problems
A recent World Economic Forum report indicated 80 percent of global companies see the opportunity for increased supply chain security as a huge priority. Unfortunately, a company can never fully prepare for and eliminate all risks. Unexpected events do occur, and there's no way to prevent natural disasters or political unrest. However, businesses can take the steps to mitigate risk and adequately prepare for any potential problems their supply chains may face.
Some companies have worked to implement strategic sourcing policies or backup procurement practices that will ensure they are prepared in the event a major supplier is unable to provide them with essential raw materials or products. This can ensure a business has access to necessary supplies even if a natural disaster has hit their primary raw material provider allows and manufacturing to continue as usual.
Other companies are taking the initiative to mitigate risk by moving operations back to the U.S. While some businesses can enjoy major cost savings by manufacturing products overseas, having domestic production facilities can help a company eliminate some potential risks. The U.S. typically has strong and effective disaster relief processes to help those hit by natural disasters or tragedies, meaning a factory shut down by an event typically won't be closed for too long. However, when production facilities are across the world, a company may have no idea how a country's government is prepared to deal with disasters, potentially making it more risky for firms to operate overseas.