De-risking Your Supply Chain

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INDUSTRIAL ENGINEER – VOLUME 47: NUMBER 8
By Reginaldo Montague

Supply chain has grown from fragmented logistics and working departments into a massive, complex, highly coordinated functions that are vital to the success of a firm. As supply chain becomes more vital for firms, failure must be prevented. To do so, having a supply chain risk management is essential for firms.

First of all, the firm must be able to identify their supply chain risks. Such information can be obtained from various sources like audit reports, customer complaints, benchmarking reports, etc. Audit is the most common method in industry, usually focusing on finance and accounting control. These audits may also reveal weaknesses in a firm’s supply chain. Therefore, it is better to conduct an audit with multidisciplinary team instead of utilizing only internal audit team. Benchmarking can also help to compare a firm’s position against the others’.

After identifying the possible supply chain risks, the firm must analyze them to make sure they have mitigation plan should the risk happen. There are several examples of failure and success in supply chain risk mitigation. An example is when a Royal Philips Electronic manufacturing plant, a major mobile phone component for Nokia and Ericsson, experienced a fire. Nokia acted quickly, switching orders to another manufacturer. Ericsson, however, stayed with their single source strategy, resulting in $400 million lost sales.