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.