Supply chains around the world have been getting more and more complex in recent years as the world becomes a truly global economy. As businesses look to expand their horizons to new markets they can extend their system and expose weaknesses and vulnerability.
For retailers and firms in other sectors it is important to discover and improve on these weaknesses, particularly as supply chain failures are becoming more public. In the UK recently, a scandal involving food supply chain has been major news and this has come about through extended and stretched supply chains without the necessary checks.
The level of financial and reputational damage caused by the news that has been widespread, with supermarkets feeling the brunt of the anger, although now retailers such as Ikea have been embroiled in the issue.
Another notorious event was the fire in a Mexico manufacturing plant in 2000 that affected two mobile phone companies served by the plant.
Ericsson, which had its components manufactured at the factory suffered an acute shortage, saw its market share fall as a result, and eventually left the market. Nokia however, had a robust and strong supply chain in place and was able to reduce the level of disruption suffered, therefore surviving the fire and continuing business in a fashion as near to normal as possible.
The study indicates just how important it is to have supply chain risk management procedures in place and the need to create strong and robust systems that are not negatively affected by a single event, from a fire or even a natural disaster such as the earthquake and tsunami that struck Japan, which damaged a host of firms.
Events like the Fukushima nuclear disaster, hurricane Katrina and the Boxing Day tsunami all had an impact on any business whose supply chain was intertwined with specialist manufacturers, chemical plants and agricultural producers in the affected areas.
Experts agree that whether the supply chain is a local one, or one that covers the length and breadth of the globe, the principle remains the same, the longer it is, the more chance of it going wrong and impacting the business. Many supermarkets in the UK have promised to shorten their supply chains following on the back of the horsemeat scandal.
The supply chain is “only as strong as its weakest link”.
This is why supply chain management and the understanding of risks within a retailer’s operations is absolutely crucial. Knowing the risks the company is exposed to is absolutely vital and on many occasions it is not a popular area to point out, as organisations often see risk management and the process of reducing it as a brake on profits.
There are ways that companies can reduce the risk they are exposed to via their supply chains and one of the priorities should be to identify the potential problems that exist in the system.
Our supply chain audits are designed to highlight the pressure points and dangers within the supply of goods and materials. Increasing visibility and the understanding of the process, which may involve dealing more closely with those further up or down the chain, is vital for businesses looking to reduce the risks they are exposed to.
Once these dangers are highlighted they need to be prioritised according to the level of impact they will have on the wider running of the business. Calculating the potential risks takes into account the likelihood of events occurring in order to know what to prepare for first.
Ultimately, it is vital that companies continue to assess and monitor risks, while establishing measures to bypass any problem areas.