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Supply Chain disruptions
Solution
Supply Chain Risk and Built-in Resilience
In recent years, unforeseen disruption across the geopolitical landscape has forced businesses to consider risks within the supply chain more than ever before.
Companies are increasingly having to anticipate threats from partners sitting outside their organization in order to build-in operational resilience. Anything that has potential to cause financial, reputational damage or even legal problems needs to be monitored.
Understanding the risks posed by suppliers and other stakeholders, however, enables companies to start to manage and mitigate those threats – and ensure they are prepared to react should the worst happen.
Challenges addressed
Geo-political instability
From blind to full visibility in four steps
We are now in a world where volatility has almost become the norm, and organizations need to be ready to handle any kind of threat in their supply chain. Whatever the disruption, companies must ensure they can continue to operate – and the organization protects its bottom line.
For many businesses this will no longer be optional. National governments are now passing legislations that will hold organizations responsible for managing the risk posed by their suppliers. In Germany, for example, the Supply Chain Due Diligence Act is making risk assessment of their direct and indirect suppliers a legal obligation. This is expected to soon become commonplace across the rest of Europe.
As such, organizations must start to take steps to protect themselves. This includes analyzing embedded risks, predicting the potential impact to their business, and evaluating ways they could be reduced or managed, should a situation occur. Companies also need to track key metrics that will enable them to anticipate whether threats are likely to materialize – so they are ready to act quickly should they need to.
.
Step 1: Assess the risk
The first step in managing supply chain risk, however, is the initial assessment of the threats the company faces. Organizations should be looking to develop a detailed risk inventory and evaluate the immediate and long-term consequences should any come to pass.
These might be at a macro level. For example, could a supplier be impacted by geopolitical instability – are they located near a war zone and could supply be discontinued? Risks can also be on the micro-level too, and linked to how a supplier manages their day-to-day business. For example, is there a chance a supplier is employing children or using materials that are harmful to the environment?
Visibility over these threats will enable an organization to determine whether they can take steps to mitigate them before they become a problem or whether they will simply need to manage them should they happen.
Step 2: Extrapolate the potential impact
If a supply chain risk is likely to affect an organization’s top or bottom line, the potential extent of the damage also needs to be calculated.
Where disruption could impact capacity, output or demand, businesses need to understand the financial implications. If new legislation is likely to disrupt future plans for the business or lead to legal issues, what would be the impact? If a shipping company discontinues its vessels, what will be the effect on global container prices and how will this impact cost structures?
Organizations should also be looking at the timelines involved should these events happen – for example, might it happen overnight, or will it take months to come to fruition?
Step 3: Simulate mitigation
Once the potential impact has been assessed, organizations then need to ensure they are ready to react to different situations. And they will need to simulate scenarios to test their responses.
In the face of risk, resilience is demonstrated not just in the steps taken but in the speed of the reaction. In most cases, the faster a business responds the better equipped it is to maintain business continuity – and the shorter the duration of the recovery period will be.
Using scenario simulations, businesses can build-in resilience and accelerate the recovery upcurve by ensuring it has a playbook in place and ready to go.
Step 4: Anticipate the future
The more mature an organization becomes in terms of its processes, the better it will be at anticipating risk. As such, companies should be looking to connect data, increase collaboration, and increase automation across its value chain.
Where there is excellent digitalization, companies will be able to view relevant information relating to risk more readily and it will be easier for them to react and recover. With the right processes in place, they will then respond to a crisis calmly, their reactions will be less drastic, and the business will remain stable.
This will also help them to keep their eye on the KPIs that matter. They can protect their gross margins, secure cash flow and ensure the business operations stay healthy.
While no company is ever fully protected from the impact of risk, there needn’t be any reason for it to limit a business’s potential. Taking steps to risk assess the supply chain today can ensure resilience is built-in at every level of a business, enabling it to achieve its short and long-term objectives with increased confidence.
Client Stories
Vice President Argo EFESO
Harsh Joshi
The authors
Vice President EFESO Consulting
Kristof de Coster
Managing supply chain risk in a rapidly changing chemical industry
Take a look at how we helped some clients manage supply chain risk and build-in resilience
Vice President Argo EFESO
Harsh Joshi
Supply Chain disruptions
The more mature an organization becomes in terms of its processes, the better it will be at anticipating risk. As such, companies should be looking to connect data, increase collaboration, and increase automation across its value chain.
Where there is excellent digitalization, companies will be able to view relevant information relating to risk more readily and it will be easier for them to react and recover. With the right processes in place, they will then respond to a crisis calmly, their reactions will be less drastic, and the business will remain stable.
This will also help them to keep their eye on the KPIs that matter. They can protect their gross margins, secure cash flow and ensure the business operations stay healthy.
While no company is ever fully protected from the impact of risk, there needn’t be any reason for it to limit a business’s potential. Taking steps to risk assess the supply chain today can ensure resilience is built-in at every level of a business, enabling it to achieve its short and long-term objectives with increased confidence.
Step 4: Anticipate the future
Take a look at how we helped some clients manage supply chain risk and build-in resilience
Managing supply chain risk in a rapidly changing chemical industry
Client Stories
The authors
Vice President EFESO Consulting
Kristof de Coster
Step 1: Assess the risk
The first step in managing supply chain risk, however, is the initial assessment of the threats the company faces. Organizations should be looking to develop a detailed risk inventory and evaluate the immediate and long-term consequences should any come to pass.
These might be at a macro level. For example, could a supplier be impacted by geopolitical instability – are they located near a war zone and could supply be discontinued? Risks can also be on the micro-level too, and linked to how a supplier manages their day-to-day business. For example, is there a chance a supplier is employing children or using materials that are harmful to the environment?
Visibility over these threats will enable an organization to determine whether they can take steps to mitigate them before they become a problem or whether they will simply need to manage them should they happen.
Step 2: Extrapolate the potential impact
If a supply chain risk is likely to affect an organization’s top or bottom line, the potential extent of the damage also needs to be calculated.
Where disruption could impact capacity, output or demand, businesses need to understand the financial implications. If new legislation is likely to disrupt future plans for the business or lead to legal issues, what would be the impact? If a shipping company discontinues its vessels, what will be the effect on global container prices and how will this impact cost structures?
Organizations should also be looking at the timelines involved should these events happen – for example, might it happen overnight, or will it take months to come to fruition?
Step 3: Simulate mitigation
Once the potential impact has been assessed, organizations then need to ensure they are ready to react to different situations. And they will need to simulate scenarios to test their responses.
In the face of risk, resilience is demonstrated not just in the steps taken but in the speed of the reaction. In most cases, the faster a business responds the better equipped it is to maintain business continuity – and the shorter the duration of the recovery period will be.
Using scenario simulations, businesses can build-in resilience and accelerate the recovery upcurve by ensuring it has a playbook in place and ready to go.
We are now in a world where volatility has almost become the norm, and organizations need to be ready to handle any kind of threat in their supply chain. Whatever the disruption, companies must ensure they can continue to operate – and the organization protects its bottom line.
For many businesses this will no longer be optional. National governments are now passing legislations that will hold organizations responsible for managing the risk posed by their suppliers. In Germany, for example, the Supply Chain Due Diligence Act is making risk assessment of their direct and indirect suppliers a legal obligation. This is expected to soon become commonplace across the rest of Europe.
As such, organizations must start to take steps to protect themselves. This includes analyzing embedded risks, predicting the potential impact to their business, and evaluating ways they could be reduced or managed, should a situation occur. Companies also need to track key metrics that will enable them to anticipate whether threats are likely to materialize – so they are ready to act quickly should they need to.
.
From blind to full visibility in four steps
Geo-political instability
Challenges addressed
In recent years, unforeseen disruption across the geopolitical landscape has forced businesses to consider risks within the supply chain more than ever before.
Companies are increasingly having to anticipate threats from partners sitting outside their organization in order to build-in operational resilience. Anything that has potential to cause financial, reputational damage or even legal problems needs to be monitored.
Understanding the risks posed by suppliers and other stakeholders, however, enables companies to start to manage and mitigate those threats – and ensure they are prepared to react should the worst happen.
