Chain Guards
With every link you add to your supply chain, the chance of a disruption rises. But you can take steps to reduce your vulnerability.
Identify Critical Suppliers. A company can't begin to mitigate against risk until it knows where it is most vulnerable. Which disruptions have the potential to do the most financial damage?
Cultivate Multiple Suppliers. Depending on the country, one backup might not be enough. "You don't want both of them to be in the same country," advises Kevin O'Marah, chief strategy officer at AMR Research. "A war or a trade embargo will affect them the same way."
Form Cross-Functional Teams. Various departments need to be involved in planning for contingencies, including purchasing and logistics.
Check Out Your Supplier's Address. You can't afford to guard against every natural disaster. But if a supplier is situated in a precarious spot — four feet above sea level, say — you'd better be prepared. Or choose a different supplier.
Collaborate More. If a supplier makes anything other than a commodity, try to strengthen your ties with a joint venture of some type. "You need to make sure you know what they are doing," says Don Rosenfield, senior lecturer at MIT's Sloan School of Management.
Rethink Logistics. Given what happened with fuel costs last year, it may be worth re-analyzing the total flow of goods in the chain. Price volatility (in food, for example) can also spark labor unrest and slowdowns. And "remember to look below the first tier of suppliers," advises Gary Lynch, global leader of Marsh's supply-chain risk-management practice.
Incorporate Technology. Managing information in a supply chain may be more critical than managing goods. Knowing where your goods are makes it easier to act strategically to avoid delays — switching ports, if necessary.
Keep Financial Tabs. As hard as it may be — especially for your suppliers based in China — it's important to find out as much as you can. For instance, is a supplier paying its bills on time? Are its customers ordering less? Tightening credit lines and rising operational costs will drag some suppliers down. Others may run short on cash, leading them to skimp on quality or materials. — J.H.
Weak Links
73% — Respondents whose supply-chain risk level has risen since 2005
71% — Respondents who said the financial impact of a supply-chain disruption has grown
65% — Respondents who characterized their supply-chain risk-management practices as having "low" or "unknown" effectiveness
0% — Respondents who say they are "highly effective" at supply-chain risk management
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