How to Mitigate Supply Chain Risk during a Crisis
To maximize operational and economic efficiency, production processes are often spread across multiple suppliers, operating in numerous countries, in multi-tier supply chains.
While there are significant advantages to this approach, it often comes at the cost of greater resilience and transparency. Those who thrive in uncertain times tend to be companies that take a proactive (and not a reactive) approach.
This year, businesses have had to contend with threats from all angles:
- COVID-19 (the "big one")
- Cyberattacks (including data breaches)
- The economic downturn (as a result of the pandemic)
- Natural disasters (including hurricanes and earthquakes)
- Political upheaval (like Brexit)
- Trade disputes (and tariff uncertainty)
So how do we reduce supply chain risk? Let's take a look.
Leverage Diversification and Digital Tools
In our experience, the Original Equipment Manufacturers (OEMs) that ride out the storms successfully tend to have highly diversified and sophisticated supply chain risk management practices.
In other words, they have a backup plan. For example, at the onset of the trade war with China, OEMs quickly started looking at MITI-V (Malaysia, Indonesia, Thailand, India, and Vietnam) countries.
So regardless of what happens, the supply chain can continue undisrupted. By 2022, these same nations are expected to make the top 15 list of manufacturing countries.
These OEMs also use digital tools to engage in recurrent in-depth supplier risk assessments. They also leverage automation technologies whenever possible, to optimize processes.
Prepare for the Worst-Case Scenario
In an increasingly unpredictable world, we have to be ready for anything. In this scenario, it helps to build robust inventories of raw materials and finished goods to avert potential future disruptions.
You should also plan repairs and maintenance of equipment by stocking up on parts. This includes parts for older equipment that often goes out of production.
At factories experiencing labor shortages due to the emergency, focus on the most critical products and components to ensure seamless output. During the height of the pandemic's first wave, we saw this (firsthand) when employee capacity tumbled by 50% or more.
Learn from past Disasters and Make Better Decisions
Risk management professionals must learn from the past and better plan for the future. For example, whenever just-in-time production is disrupted, there should be alternatives in place to ensure continuity.
You must also take steps to ensure that all your partners share the same ethos (if not, production will come to a standstill). This demands extensive vetting and transparency down the supply chain.
When you put in the effort, production won't be delayed because a component manufacturer was unprepared for the next crisis.
The current situation is also an excellent time to strategize by scoring outsourcing providers, countries, and continents based on:
- Currency fluctuations
- Economic volatility
- Geopolitical issues
- Natural disasters
- Social unrest
Over the last 25 years, Michigan Manufacturing International has helped American OEMs overcome crises and ensure business continuity.