The supply chain is the lifeline of any business. By definition, it is the sequence of processes involved in the production and distribution of products or services to the end user (the customer). And it includes every person, department, and company both inside and outside of the organization.
A supply chain can experience disruption (bottlenecks or breaks) at any time and for any number of reasons: natural disasters, sociopolitical events (e.g. longshoremen strike at U.S. West Coast ports), international conflicts, global economic factors, etc. Such disruptions can cause delays in getting raw materials to the production floor and/or finished goods into the hands of your customer. They can prove very costly to your business in terms of its current and future revenues and bottom line, and can also affect customer retention and loyalty.
A supply chain is only as strong as its weakest link. The key to avoiding – or at least mitigating – supply chain disruptions is to plan ahead by adopting a supply chain risk management system. The first step is to identify your organization’s supply chain exposures – its so-called weak links.
Here are some of the more common weak links found in the supply chains of middle market companies:
This refers to the practice of purchasing goods or services from a single supplier, even though there are other suppliers available. It is a risky strategy, since any disruption experienced or caused by the vendor – warehouse fire, labor strike, product stock-out – could result in delays or cancellation of your production. And while you may be able to recover by sourcing from another supplier, delays could still result from the time involved to vet the vendor or from their capacity issues. Avoiding a single-source situation is generally preferred; when unavoidable, you should be ready with your alternate source in advance.
Overreliance on long-distance suppliers
Lowest-cost procurement strategies tend to result in relationships with vendors in low-cost countries, which are usually far away (often, across the globe). Transactions with these suppliers typically require a lot of lead time, which magnifies the impact of any supply chain disruptions. Identifying a closer supplier in advance would mitigate such a risk. Further, in the current environment of reshoring and nearshoring, a reassessment of total procurement costs from all sources – near and far - could result in a change in strategy.
Effective supply chain management involves a coordinated effort from many people in many departments, both inside and outside the company. It requires a culture of cross-functional collaboration and communication. Unfortunately, many companies struggle with this. Those that have been the most successful have aligned their functional activities with their supply chain strategy and have invested in trained supply chain professionals - at a minimum in the procurement department, and likely also at the executive level.
Information technology and cyber security
Just like in every other area of the business, IT and cyber security are very important within the supply chain area. With cross-functional activities and vendor and customer data interchanges, IT systems are quite vulnerable to breach and company data can be compromised, which can be incredibly disruptive and damaging. Strict adherence to IT and cyber security policies and procedures, along with regular monitoring and testing of related controls, are essential.
By proactively identifying the weak links in your supply chain and making appropriate changes and establishing contingency plans, your company can significantly reduce the likelihood or impact of a disrupting event, and thus keep the supply chain from breaking.
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