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Supply Chain Disruption

Accepting the Realities of Supply Chain Disruption: Three Important Steps

The likelihood of significant “black swan” events that drive supply chain disruption is expected to grow as the global economy becomes more interconnected. Global warming, changing weather patterns, geopolitical tensions, trade wars and worker shortages are increasingly common threats.

COVID served as a wake-up call for many companies, exposing shortcomings in their ability to identify and prepare for supply chain disruption. Those companies that do nothing to address these growing threats by strengthening their risk management practices are rolling the dice, and will likely continue to pay the price for inaction.

The first step in gaining greater control over supply chain management is to accept the realities of supply chain disruption. Gone are the days when an efficient Just-in-Time supply chain strategy could run smoothly on its own with little attention. Effective supply chain risk management now requires a total reexamination of current policies and procedures. A prudent course of action as we head into 2022 is for companies to follow these three steps:

Step One: Establish Risk Management as a Priority

Risk management must be an integral part of daily supply chain operations. The first step toward that goal involves establishment of an internal system of risk identification across the entire supply chain. Once those risks are identified, they must be analyzed, rank-ordered and prioritized based on the likelihood and extent of potential disruption they could cause.

This analysis provides an actionable data set and framework for your company’s risk management plan. As existing risks evolve, and as new risks arise, and all risks will require reprioritization, at least quarterly. Today’s supply chain managers must have this conversation with their company’s senior management team, to secure appropriate investment to support ongoing risk analyses.

Step Two: Formalize a Risk Scoring ProcessDynamic Supply Chain Risk Scoring

If some type of risk scoring does not already exist, that industry best practice is a necessity. One effective way to adopt that best practice is application of Dynamic’s Supply Chain Risk Scoring,SM a proprietary methodology that evaluates the key factors that can affect product availability, and provides a clear assessment of the strength and resiliency of the related supply chain. Dynamic’s Risk Scoring process evaluates and scores risks based on multiple risk categories and offers related mitigation solutions.

Step Three: Share Risk Management with Supply Partners

A third decisive step in evolution of your company’s risk management capability is the establishment of transparent relationships with suppliers, which involves proactive sharing of risk-related information and ongoing communication regarding actual and potential risks. This transparency-based partnership must include sources, availability and lifecycles of all products and components.

One of the best ways to set the expectation with suppliers for transparent communication is to include risk data sharing requirements in quote requests or service agreements. Managing the risks in supply chain in partnership with suppliers, where suppliers do not fear sharing negative information, is one of the most effective ways to navigate through the unpredictable and increasingly common threats of our global supply chain.

All companies would be well served to consider supply chain disruption as a “normal course” of doing business in the future. Making risk management a priority; building a risk identification and scoring process; and forging deeper relationships with suppliers are three effective ways to be prepared.

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