We talk a lot about risk analysis: making sure your organization's supply chain is optimized to avoid natural risks, while robust enough to offer alternative solutions in the case a supplier is unable to contribute for one reason or another.

Many recommendations and actions that follow a risk analysis are done in the name of risk avoidance. Risk analysis looks at a supplier's weather patterns, its geographic location, and a number of other socio-political factors, in addition to supplier-specific information like their financials to determine the likelihood of a future supply shortage. In response, alternate supply lines are found so a backup plan is in place in the event a supplier goes out of commission, and in many cases, manufacturing operations will be moved to a safer geographic area. One of the reasons nearshoring is so advantageous -- outside of landed cost savings due to reduced shipping -- is that the manufacturing centers in Mexico and other Latin American countries are, relatively speaking, free from flooding, volcanoes, earthquakes, and other natural disasters that leave lingering effects.

With the Boulder flooding here in the U.S. fresh on our minds, we can look at the next step down. When "risk avoidance" is impractical or impossible, the strategy turns to "risk management" -- the steps that you take when a danger you've done your best to avoid rears its ugly head and strikes.

In terms of flooding risk, the Army  Corps of Engineers is no longer developing strategies for combating and avoiding floods alltogether. For years, the Corps' strategies were aimed at "flood control". Then they became "flood reduction" practices. Now, the call it "flood risk management", and the strategy is passive. Instead of actively trying to control and prevent floods through levies and dams, the Corps of Engineers is implementing policies to let water run its natural course and flood, so long as it doesn't endanger lives or (presumably developed) property.

In your own organization, while risk avoidance is better, there are still effective risk management strategies you can implement. A particularly robust one, meaning it has benefits outside the areas of risk, is developing a near-partner-like relationship with your critical suppliers. Once you have a healthy, active, and collaborative relationship, you can leverage it for better contract terms and savings and, in terms of risk management, agreements to provide those first post-shortage shipments to your organization, softening the blow a disaster-induced shortage can have on your own supply chain.

Just like every house can't be built on stilts, your organization can't plan to avoid every risk. Sometimes, a healthy mitigation policy is just as effective as avoidance.
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Nicholas Hamner

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