How to mitigate supply chain risks and securing new sourcing partners have become a priority for business executives. Globalization has created vast networks of cross-border commerce vulnerable to catastrophic disruptions. The global supply chain management market reached $16.64 billion in 2021. Despite the drop in 2020, according to market indicators, the size of this industry will grow at a CAGR of 10.8% between 2022 and 2028.
According to Bloomberg, China accounts for 12% of global trade, and due to COVID restrictions, supply chains suffered greatly. Factories, retailers, and consumers were already experiencing major operational disruptions due to the COVID-19 pandemic. However, China’s unexpected shutdowns exacerbated the problem. Supply chain risks keep increasing, and we know how they can be catastrophic for business.
Changing business-as-usual practices have become a priority for business executives. Turning global supply chains into regional is no longer an option. Shifting to shorter supply chains to countries like Mexico and Colombia is well underway. However, securing new sourcing partners can be a difficult and time-consuming process that companies cannot avoid.
Identify the Threat
Many manufacturing companies are still feeling the pain from COVID and related supply chain snags. It is essential to devise a plan to mitigate supply chain risks and secure new sourcing partners. According to Bloomberg, “One company, Armstrong Flooring Inc., has already been pushed into bankruptcy after higher costs eroded its cash. And auto collision repair company Service King is negotiating with creditors over ways to ease its debt load as it struggles to secure auto parts and get mechanics back to work”.
Some supply chain changes might result in higher costs. However, unexpected global events that affected supply chains have proven to be catastrophic. An excellent way to assess your supply chain risk is to rank your potential threats. Set up a matrix that addresses all potential hazards to your supply chain. Let your matrix have a likelihood of occurrence along one axis and the magnitude of impact along the other axis. Start working by prioritizing threats that score highest on both axes.
Develop a Disruption Map
After identifying potential threats, analyze where these threats would most likely occur. Your disruption map will show where these threats can affect your supply chain. Determining where a company is most vulnerable will allow management to implement measures to mitigate supply chain risks. Contingency plans can then be put in place to minimize costly disruptions. Remember that disruptions do not usually affect supply chain networks uniformly. Identifying new sourcing partners is critical in this process.
Current unforeseen events like COVID and the invasion of Ukraine have alerted companies on how distances exacerbate supply chain risks. So, diversifying your supply chain and bringing suppliers closer to home should mitigate risks and secure production.
Create Security and Recovery Plans
If you mitigate risk and secure new sourcing partners, you reduce the chances of costly disruptions to operations. Companies must incorporate redundancies into their plans to hinder threats from impacting their production.
As companies assess their disruption maps, they should analyze new sourcing partners, freight and distribution alternatives. Anticipating weak links in their chain will significantly reduce the negative impact during a disruption. Build consensus within the organization early in the process. Flexibility in handling changes in your supply chain will be easier to manage.
Securing new sourcing partners and carriers may trigger healthy competition. This can result in lower prices, increased innovation, and better services. Write your security and recovery plans in detail and reach an agreement with all stakeholders involved.
Technology is one of the critical tools for mitigating supply chain risk and securing production. It allows visibility to products as well as assets across extensive networks. Find out what technology best fits your organization. The right technology will enable production operations to become more agile, resilient, and efficient.
Careful planning can help companies mitigate the risk associated with having a global supply chain. Migrating to a regional supply chain or creating redundancies by nearshoring will help companies reduce supply chain risk and secure production.