All it takes is one unexpected traffic jam. Your truck is delayed and your shipment doesn’t arrive at the warehouse on time. This means customers don’t get their products when they expect them, leading to a customer service nightmare to deal with.
Supply chain disruptions are real. And they’re getting even more real and scary in our changing world. As a purchasing manager, you need nerves of steel to handle these disruptions. But even more so, you need realistic, helpful strategies to mitigate risks.
Risks can be both internal and external to your organization. And the strategies you use could make or break your business. Keep reading to discover what potential disruptions you should look out for and how to mitigate the associated risks.
Internal Risks
Let’s start by looking at some of the most common internal risks. These are the ones within your organization that you have direct control over. Because you can control them, you need to carry out a deeper investigation into these to mitigate the risks.
Risk 1: Supply
The supply risk is often associated with human error. You’ve entered the wrong order quantity. As such, you’ll get the wrong order quantity. Human error is a challenge that needs to be addressed.
Risk mitigation strategy
Having too few or too many orders coming in can be a problem for your organization. However, this risk can be mitigated by introducing automated processes and a system of double-checking order quantities. It’s also essential to have good relationships with your suppliers in the event a mistake needs to be rectified.
Risk 2: Process
There may be flaws in your entire purchasing process. From the order placed through to manufacturing, inventory management, demand planning, warehousing, transportation, and customer service — a lot of things can go wrong.
Risk mitigation strategy
Dealing with process risks means reevaluating your entire purchasing process, and having a centralized database where all the information can be found at a touch of a button. Making use of reports and monitoring key metrics is essential to identifying patterns of errors and rectifying the mistakes.
Risk 3: Control
Quality control is one aspect of the control risk scenario. This is where you need reliable partners who can provide quality assurance with every shipment sent out.
Risk mitigation strategy
Your risk mitigation strategy here must involve sample checking, quality assurance by your providers, guarantees on product quality, etc.
Risk 3: Demand
Demand risks are often associated with stale data. In turn, this leads to manufacturers over- or under-producing. Forecasting demand manually rather than using software could lead to over or underestimations. This can lead to unsold inventory, product markdowns, and even lower profit margins.
Risk mitigation strategy
Using the right software that reduces the chance of human error and automatically calculates the desired quantities is another internal risk mitigation strategy you can employ to reduce costs.
External Risks
Now, let’s turn to several key external risks that can wreak havoc on your supply chain management efforts and strategies. These risks are considered external to the organization and fall outside its scope of control. Despite this absence of control, there are some risk mitigation strategies that you can implement to reduce risk levels.
Disruption 1: Inventory management
Managing inventory means receiving the right quantity of goods at your warehouse. However, the wrong type of stock or the wrong quantity can lead to serious delays and a lot of time and money wasted.
Risk mitigation strategy
Have processes in place to ensure suppliers know exactly what they’re sending. Leave no room for error. Confirm everything in writing through service level agreements (SLAs) and contracts. Make sure your proforma or invoice is as accurate as possible. Always double-check the details.
Disruption 2: Supplier reliability
Some suppliers are more reliable than others. It is the less reliable ones that need attention. They may delay you, send wrong quantities, send poor quality goods, increase their prices unexpectedly, etc.
Risk mitigation strategy
Monitor every supplier’s performance closely and ensure that they always hit their key performance indicators (KPIs). If they don’t, send warning letters. Terminate the agreement if there is no improvement.
Disruption 3: Transportation delays
This is a big one in supply chain management. A simple traffic jam could cause you to not get stock on time, disappointing customers.
Risk mitigation strategy
Whether it’s by courier, truck, rail, air, or ocean, make sure you purchase cargo insurance for every step of your transportation process. This added cost may seem unnecessary, but it is a good cover in the event that you don’t get your goods on time. After all, all it takes is a single ship to block a port or for one shipping accident to happen and your shipment is already delayed by weeks.
Disruption 4: Communication challenges between supply chain partners
Delays in communication can be highly costly. These often occur because there’s no single medium of communication, meaning it is scattered everywhere. Plus, it can be because you operate in different time zones to your suppliers, causing continued delays in communication between you to resolve challenges.
Risk mitigation strategy
If you and your suppliers are in different time zones, consider working with an outsourcing partner that works in the same time zone as your supplier. This “middleman” can sort out challenges on your behalf much faster than you can. They can react to changes and problems that much quicker than you, reducing delays.
Disruption 5: Regulatory compliance
Complying with local and international regulations is a must. But these regulations can change overnight. Not staying abreast of legal requirements in your industry can be detrimental for your business.
Risk mitigation strategy
Consider partnering with an outsourcing partner that always keeps their finger on the pulse of regulatory changes. They should have a dedicated legal team on board to ensure that you’re always on the right side of the law.
Disruption 6: Country risk due to political conditions
Acts of war, terrorism, social unrest, pandemics, elections and changes of government, and geopolitical tension can be devastating for your business.
Risk mitigation strategy
As a risk mitigation strategy, consider having a broad supplier base scattered all over the world that you can tap into at a moment’s notice in the event that political events in one country disrupt your supply chain.
Disruption 7: Country risk due to economic conditions
Economic risks include supplier bankruptcy, trade wars, tariffs, protectionisms, labor strikes, economic downturns and recessions, sanctions, etc.
Risk mitigation strategy
Aim to always be updated on economic conditions in your supplier’s country or countries. Closely follow new developments to prepare you to handle any economic risks. Whether short- or long-term changes are expected, have contingency plans in place for every possible scenario.
Disruption 8: Cyberattacks and data breaches
Cyberattacks and data breaches are serious threats to a business’ reputation and good public standing. Any potential threats can harm your customers and their personal information, which can lead to serious financial losses.
Risk mitigation strategy
Two risk mitigation strategies can be followed here. One, make sure you proactively and continuously monitor any potential cyberattacks through a dedicated team. Secondly, keep your software protected with the right tools. But also make sure you purchase insurance in the event of any breach that causes financial losses.
Disruption 9: Environmental and climate change risks
Natural disasters due to climate change such as hurricanes, floods, etc., can seriously damage your supply chain. Excessive weather conditions can harm smooth and timely deliveries.
Risk mitigation strategy
Monitor for real-time weather updates when it’s time to have your goods shipped out and received. Make provisions for alternative forms of transportation. Always have an emergency fund available for transportation detours and derailments so that you’re able to get your goods on time.
Conclusion
The implications of disrupted supply chains are clear. This is why you need financial risk management that minimizes any potential losses as a result of internal or external risks.
While some risks can be better managed than others, partnering with StorsenDigital is the answer. We not only help you with finance optimization. We also introduce critical cost reduction strategies that help your business grow.
Plus, with pinpoint precise financial reporting and financial analysis, you’ll enjoy a stronger financial strategy driven by strategic finance. Talk to us about your finance operations outsourcing today and rely on us to mitigate critical risks that give you the peace of mind you need to run your business like a machine.
