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Supply chain risk management - Are you prepared?

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The smooth and orderly movement of goods and services from inception to end point is an integral part of business success. Yet a wide spectrum of opportunity exists for delays, interruptions or force majeure events to upend the most meticulous planning and wreak havoc on the enterprise. It's no wonder 83% of companies surveyed by FM Global consider supply chain disruption to be the greatest risk overall that can affect their financial well-being.

So, when was the last time you did a self-assessment focused on the risks in your supply chain?

A good place to start is to examine the sources that are the main contributors to top-line revenue. In other words, what is most critical to the business? You'll want to drill down to look at the impact not only of suppliers, but also of the associated logistics. And remember, in today's world, what is being moved around is often not physical goods, but information, data essential to business operations.

Next, prioritize the urgency for development of risk mitigation strategies based upon the likelihood of a particular supplier disruption and the impact it would have on the business. What would hurt the most?

With this information in hand, you can now determine what action needs to be taken to properly act upon the occurrence of a disruptive event. This will not be a one-size-fits-all solution, since each element of the supply chain has its own characteristics that must be evaluated, such as alternative transportation, multiple suppliers, buffer inventory or product redesign.

These three steps will provide risk managers with a mitigation plan, but it cannot be static. As the business evolves, so must the plan. There are ample tools available to monitor trends, providing early indicators to prevent risk situations from occurring. The process must engage central elements of the enterprise – sales, operations, finance and risk management, at minimum – and meet routinely to make strategic and tactical supply chain decisions.

Of course, none of this matters if the response to disruption is not swift, efficient and anticipated prior to the event. Identification of "choke points" in your supply chain is a key component of the risk mitigation plan. Monitor these points with triggers that can signal alerts quickly. It may mean the difference between a fast and steady recovery and a disastrous crisis.

Accepting risk is an inherent element of business success. It creates value and generates revenue. Forward-thinking businesses, realistically attuned to the vagaries of global commerce, political instability, cyber-insecurity and the unknown next thing, develop a culture of risk consideration. In today's world, it is a necessary element of self-preservation.

The supply chain is the superhighway of the business. Putting up the road signs, setting limits and policing the traffic are simply common sense precautions against the speeders and occasional accidents. These steps allow forethought to replace panic when the unexpected occurs, and the business gets to live another day. Don't be caught short when you could have been prepared.

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