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Supply Chain
How to Mitigate Risk in the Supply Chain
By John Daker, Vice President, Business Development, Riverwood Solutions
stranded vessels, is yet another ex- ample of the risk inherent in any supply chain. As ships remain un- able to offload containers, many sup- ply chain managers will be searching for solutions to the failure of goods to reach stores and consumers. Those lucky enough to have avoided disrup- tion this time will be busy trying to understand their exposure to such a problem and make plans to mitigate the disaster should something simi- lar happen to them. The likelihood is- n’t that something similar will hap- pen, it is that some other event, equally unexpected, and equally dis- astrous will happen.
S
Planning for Disaster Headlines like “Hanjin Ships
Stranded in High Seas, Roiling Sup- ply Chain” come as surprises, but
hipping giant Hanjin Shipping’s recent filling for bankruptcy protection, and the subsequent
why are they so surprising? Part of any supply chain planning, and part of what we do at Riverwood Solu- tions, is a detailed and comprehen- sive supplier financial risk assess- ment with every supplier selection. This should have raised some red flags, and while risk assessment may not be able to avoid every disaster, it will certainly highlight and even
Risk can be minimized in every supply chain, but never eliminated.
quantify known risks, assess poten- tial disruptions, and help the cre- ation of disaster avoidance plans. There have been many occa-
sions when saving pennies has cost thousands of dollars and this could be an example of that, with some companies deciding to take the cheapest option, either knowing that
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there is some “manageable” risk, or simply not being diligent, whether they are a supplier of parts, services or logistics. Some will have assessed the risk and decided that given the levels of stock and the longevity of the product in the market, that a particular risk is worth taking. They may not even be the vendors a com- pany works with directly, but third parties two or three links down the supply chain. Good supply chain design plays
an important role. Manufacturing and shipping from a distant geo- graphical location to save a few cents may be unwise, especially when a shorter supply chain can be more ag- ile in the case of incident, while re- ducing inventory in transit. Often the few pennies saved manufactur- ing in low cost regions are eaten up by additional management costs of cumbersome supply chains that bring inherent risk. Those in the re- shoring camp will see this as another reason to consider the proximity to the consumer when choosing a man- ufacturing partner and further evi- dence that longer supply chains cre- ate unnecessary exposure. Certainly those using rail to bring product to the U.S. from Mexico will feel justi- fied in their vendor choice. It is essential at every stage to
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value the risk and balance it with the potential reward. Having no product to support a spike in demand can be the difference between a product’s success and failure. Markets are fick- le and windows of opportunity stay open for very short periods; miss one holiday season and that could be the end of an opportunity.
Disaster Recovery All too often we get a call asking
for help to fix a problem that has al- ready occurred. While we appreciate the business and are happy to help, we would rather help ensure that these problems don’t occur in the first place, or if they do, a disaster re- covery plan is already in place. Disaster recovery comes in two
parts: the identification of risk, and having a solid and quickly deployable Plan B. Risk exists everywhere and
identifying it is the start of creating a plan to manage it. Risk can be mini- mized in every supply chain, but nev- er eliminated. Having dual or multi- ple sources for parts and services is a strong foundation and it is advisable to let vendors know that even if they are currently supporting 40 percent of production they may be asked to ramp that up at short notice. This open collaboration with vendors will allow you to understand how long it
might take to divert more capacity to your product. Constant audit and manage-
ment will also help provide early warning signs that a vendor may be having some problems or maybe los- ing interest in supporting your prod-
October, 2016
John Daker, Vice President, Business Development, Riverwood Solutions
uct as keenly as they did at the out- set. Remember that you will get the supply chain you manage, not the supply chain you negotiated. Keep measuring performance and look out for trends that might provide an in- sight to underlying problems. Supply chain design and assess-
ment is a complex task and there are many issues and moving parts to consider, not simply the lowest cost. But letting cost take the lead in all of your decisions will likely produce a supply chain that has not had the proper risk assessment and disaster recovery planning. r
John Daker is a career operations, engineering and supply chain profes- sional with more than 15 years of global operations experience that he brings to his role at Riverwood. He has held engineering, operations, and program management roles at several companies including NASA, Flextronics, NHT, PowerFile, and Tesla Motors. John has worked with products in consumer electronics, networking, photonics, and managed manufacturing facilities producing audio components and electric vehi- cle power trains.
Riverwood Solutions helps OEMs and Brand Owning Enterprises of all sizes with manufacturing strategy, supply chain operations optimization, sourcing, and supply relationships. The company provides consulting and managed services to the world’s lead- ing technology product companies.
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