Do you know which element of your supply chain has the greatest risk of failure? Have you ever done an analysis of your supply chain “risks” to ensure that your organization is prepared to absorb a major disruption in your supply chain?
As the entire world continues to focus on supply chain management, large and small organizations must continually assess the risks associated with the supply chain. Failing to analyze and plan for supply chain disruptions can be costly and in some cases disastrous.
A recent survey conducted by Marsh & McLennan found that 73% of the organizations participating in the survey reported a substantial increase in the supply chain risk level since 2005. What does this mean? Well, as the supply chain gets longer and longer, and more and more work is sub-contracted, and inventory levels continue to decline, the chance of something bad happening has risen dramatically.
Here are some critical supply-chain considerations to review. By examining these elements, along with others, you may be able to determine the level of risk currently surrounding your supply chain.
Critical Vendors: Many organizations have reduced the number of vendors they deal with. If key manufacturing parts or critical raw materials are obtained through one select source, you have a much higher risk of disruption if something were to happen to those suppliers or the means by which those materials find their way to your operations.
Information Technology: The whole world relies on technology to move information. What would your organization do if there were a breakdown or disruption of the IT infrastructure along the supply chain? What if there was no Internet connection or software interface by which to share critical information? What if a virus brought the supply chain to a halt?
Inventory/Safety Stock: With the focus on Just-In-Time (JIT) inventory and other inventory-minimizing practices, there is less inventory “in the system” to cover an extended period of disruption. Look no further than the issues encountered by Toyota after the recent earthquakes in Japan. Are there enough raw materials, WIP and other inventory in place to support operations in the event of a supply chain disruption?
World Events: Does your supply chain cover the world? If it does, you need to plan for disruptions. World events continue to play a role in increased lead times and increased transportation costs. What would happen if the Panama Canal closed or the price of oil continued to rise? For all these events that you have little control over, you need to review and discuss your supply chain.
There is an old adage that says “Be prepared.” Are you? If you would like additional information on assessing supply chain risk, please feel free to contact Schneider Downs Business Advisors.
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