In Product Design, Risk Management Starts at the Beginning

As the old saying goes, “an ounce of prevention is worth a pound of cure.” That’s especially true when it comes to managing supply chain risk.

In a time when supply chain disruptions have essentially become the norm, companies are working hard to constantly monitor their current supply chains for problems. That’s a critical step, but they can do even more by incorporating risk management into the product development process early on, at the design phase.

That means approaching product design and specification processes with a risk mindset as a matter of course. Reducing the use of customized components. Using components that are available from more than one source. Exploring the use of parts made in the U.S. and other countries that are less vulnerable to supply chain disruptions. Coming up with specifications for noncritical components that make it possible to use a variety of substitutions when needed. And so on.

Overall, product design teams should look beyond cost when choosing components and give supply chain risk as much weight or more when making decisions. That’s a reversal of the traditional approach, and not always easy to do in the face of constant cost pressures. But remember: Supply chain disruptions can mean that a company can’t deliver products to customers. That can be far more costly to the business than using slightly more expensive components, and it can lead to lost sales, disaffected customers, and reputational damage.

Work Closely with Suppliers

It’s also critical to work with suppliers on this risk-aware approach to product design. Suppliers should be consulted up front and asked to provide insight into potential risks from their perspective. What can they tell you about end-of-life plans for the components in question—theirs and those of their parts suppliers? How long and strong are their relationships with the manufacturers they rely on? How well do they know the potential risks involved in the countries they source from? Are they diligently managing risk in their supply chain?

Various channels of communication should be kept open to allow broad discussion of these issues. But companies should also ask suppliers these questions in a formal fashion. That is, they should require suppliers to provide detailed lists of potential risks in their quotes and master service agreements. This will clearly underscore the fact that they are expected to collaborate on managing supply chain risk. And it will give the company’s product-development group valuable insight into how to design risk out of products; allow procurement teams to weigh risk factors when evaluating proposals and vendors; and give the company an opportunity to make informed decisions about where it wants to assume, share, reject, or modify those risks.

We’re all familiar with the concept of “design for the supply chain,” in which products are designed with supply chain optimization in mind. Now, that needs to be updated to “design for supply chain risk.” The more product designers can know about supply chain risks in advance, the more they can do about those risks—and take steps to design supply chain resilience into their offerings right from the start.

To Achieve Supply Chain Resilience…Shift Your Focus from Cost to Risk Management


It wasn’t long ago that companies could keep watch on their component costs without having to give undue attention to supply chain logistics. All of that changed with the supply shortages and delays created by the arrival, in rapid succession, of the COVID-19 pandemic, climate-related events, and the Russian invasion of Ukraine, all of which highlighted the fragility of supply chains.

These disruptions have made it clear that supply chain risk management strategy must now be top of mind. As a recent article in the Harvard Business Review (HBR) put it, “As managers navigate this dynamic, they need to think beyond product costs and supplier choices.”

Some areas of supply chain risk that managers should address include:

  • Economic: Issues related to supplier health at every tier in the supply chain, including supplier bankruptcy or manufacturing stoppages
  • Geopolitical: The effects of international conflicts, such as U.S.-China trade issues and the war in Ukraine
  • Environmental: Issues related to natural disasters or sustainability, such as societal demand to reduce greenhouse gas emissions
  • Cybersecurity: Protecting against cyber threats to supply chain management

While many manufacturers previously approached their suppliers focused mainly on price, today they must develop a more strategic approach to achieve resilience, flexibility, and sustainability, said HBR. By focusing on supply chain risks, managers can learn to stabilize supply chain disruptions in the near term while developing structural resilience in the long term.

To do this, companies must have strategies that allow them to assess the risk of their suppliers, as well as to mitigate those risks, noted business benchmarking site Brainyard. Managers need to know what’s happening not only with their Tier 1 suppliers—the suppliers they work with directly—but also the Tier 2 and 3 suppliers further up the chain.

“Once an organization has assessed the risk of its supply chain partners, the best way to build resilience is to diversify its supplier base,” reported Brainyard. “That means finding redundant suppliers for key parts and materials that are located in different parts of the world so, for instance, a hurricane in a certain region doesn’t halt all shipments of a crucial material. It could also mean finding partners closer to home—maybe not in the same country but on the same continent.”

Diversifying the supplier base and keeping safety stocks on hand are costs that may be more expensive or hard to justify, but can be important for building structural resilience, risk management professionals at McKinsey & Company wrote recently.

Other actions that can be critical to building resilient supply chains include “creating a nerve center for the supply chain, simulating and planning for extreme disruptions, and reevaluating just-in-time strategies,” the McKinsey article noted.

With supply chain risks now firmly on the C-suite’s radar, leaders must not only create supply chain risk-reduction strategies, but also revisit and update them continually.

It’s only by taking steps to mitigate risk and find the best product options that you’ll achieve better business outcomes. Learn more about Dynamic’s portfolio of supply chain services designed to anticipate and mitigate internal and external risks.