Many businesses were caught off guard by COVID-19. Nearly 98% of senior-level decision makers said their organizations experienced supply chain disruption, according to a survey conducted by Interos, a business relationship intelligence platform. The pandemic put supply chains’ risk management strategies to the test, reduced demand for ocean freight, and impacted manufacturing output.
This article discusses the importance of proactive supply chain risk management and analyzes how the coronavirus has challenged warehouse managers and logistics professionals to change their risk management strategies for 2021 and beyond.
Why Supply Chain Risk Management Is Important
Intense weather, natural disasters, and global pandemics present tremendous risks to supply chains around the world. Everyday occurrences like shipping delays, equipment repairs, and broken products also negatively impact your warehouse operations. Supply chain risk management helps you manage and mitigate the impact of these commonplace and catastrophic disruptions so you can save time, money, and energy.
Being Proactive With Supply Chain Risk Management
Taking the time to understand your supply chain and potential disruptions prepares you when they inevitably come. While you can’t predict every risk, performing routine risk analyses helps you and your team develop processes and the mindset needed to react quickly to supply chain disruptions. In other words, proactive supply chain risk management is key to long-term supply chain resilience.
An article from global management consulting firm McKinsey & Company outlines four steps to improve supply chain resilience:
- Identify the main events and risks that could disrupt your supply chain operations.
- Describe potential outcome scenarios and determine the impact of each.
- Create response strategies for the main risks.
- Weave supply chain risk management into your regular decision-making and planning activities.
Anticipating Risk in Your Supply Chain
Supply chain risk management is a time-intensive, thoughtful process. Distinguishing between low- and high-impact risks can help you develop a response strategy.
In its article, McKinsey & Company refers to high-impact risks that are difficult to predict as “black swans.” These typically include natural disasters, pandemics, and wars. Since these high risks are difficult to anticipate, having strong crisis management processes in place is the best way to prepare your staff and mitigate supply chain disruptions, McKinsey & Company reports. You could also lead scenario-based exercises and make risk monitoring part of your warehouse’s processes.
For low-impact risks that are easy to predict, McKinsey & Company uses the term “business challenges.” These include regulatory changes or customer preference changes. McKinsey & Company notes that the best way to prepare for these risks is to train your workforce and make sure they’re comfortable voicing concerns about potential supply chain risk management disruptions.
In addition to training your workforce, hiring qualified candidates also prepares you to face business challenges. Learning how to staff warehouse jobs and ask the right warehouse job interview questions helps you build a strong team.
The Impact of Supply Chain Disruptions in 2020
The coronavirus has drastically impacted supply chains across the world. In fact, according to Interos’ survey, 90% of companies believe the pandemic will have long-term effects on their businesses. From manufacturing to retail, businesses across multiple sectors have been affected.
How Supply Chain Risk Management Strategies Are Changing
COVID-19 has made risk management top of mind for many warehouse and shipping managers. Some of the pandemic-related issues managers have dealt with, per a survey from news outlet Shipping and Freight Resource, include: decline in volume, transit delays, port to customer delays, and lack of capacity.
Supply chain risk management strategies are evolving to address these issues. Below are some ways supply chains are moving toward resiliency.
Having multiple, flexible suppliers helps you react to disruptions quickly. An article from Bain & Company, a management consulting firm, discusses how creating an agile supply network aids resiliency. Creating an agile network may include moving some production activities closer to home, setting up alternate manufacturing sites, or disbursing your needs across multiple suppliers. A Harvard Business Review article echoes this sentiment; if you rely on one supplier, you’re more vulnerable to disruptions. Diversifying your suppliers limits your risk.
Cloud-based applications and platforms improve information sharing. Bain & Company explains how digital collaboration increases the quality and pace of decision-making. Supply chain and warehouse managers can embrace cloud-based technology to facilitate communication across teams. Even formal supply chain education is evolving to address crisis communication across internal teams and levels of the supply chain, Supply Chain Dive reports.
The pandemic has also spurred some managers to reconsider automation as a supply chain risk management strategy. For example, Harvard Business Review reports that automating some warehouse tasks is an appealing option because it could help companies adhere to social distancing requirements. Use of automation may bring up safety concerns though. Warehouse accident prevention should be a priority for managers considering automation. Using technology to automate inventory updates or order tracking is another risk management strategy to consider.
During some phases of the coronavirus, consumers couldn’t find toilet paper or hand sanitizers in stores. Lack of inventory wasn’t just an issue for them; it was an issue for warehouse managers everywhere. An important part of supply chain risk management is determining how much extra inventory to have available. Since COVID-19, more managers may favor a just-in-case inventory strategy instead of a just-in-time approach. While excessive stockpiling can be expensive, strategic inventory buffers may help you and your staff navigate instances of volume decline.
Engaged teams quickly adjust to new information and create strategies to manage supply chain disruptions, according to Bain & Company. Managers should empower their teams to make these contributions and be mindful of employee burnout in warehouse work. Training your team to anticipate supply chain risks, voice their concerns, and embrace risk management processes will be beneficial in dealing with both catastrophic and everyday disruptions.
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