How to avoid supply chain risk in your business
A procurement and supply team that does not have a good understanding of how to identify, mitigate and avoid supply chain risk is a major cause of risk for the organisation.
This is just one of six internal risk influencers highlighted in a CIPS good practice guide to help members develop end-to-end supply chain resilience in their organisation.
“With the risk landscape getting bleaker, supply chain professionals should be talking more about resilience,” said David Noble, CEO of CIPS. “Any negative impact on how consumers perceive a business can rattle around for years.”
Yet fewer than half of procurement professionals who responded to a CIPS surveyalways had strategies to mitigate the supply chain risk, and fewer than half felt confident to undertake a cost benefit analysis of the cost associated with a disruption in their supply chain.
Supply chain resilience draws on the best approaches to risk management and business continuity, focusing on proactive measures, according to the report, Supply Chain Risk and Resilience, which helps to define measures that can build resilience into all stages of a typical supply chain, from start to finish. As well as the risk influences, it identifies the sustainability risks, the business elements that should be assessed, such as cyber security, and the consequences of risk.
The report also breaks down the consequences of risk into three areas –financial, reputational and operational – with some risks, such as finding a supplier using child labour, affecting all three areas.
Reputational consequences alone can lead to a loss of investor confidence, bad media coverage and negative customer experience. This can give competitors an advantage and lead to future recruitment challenges.
An unanticipated break in supply chain delivery can cause delays in both manufacturing and project completion, which in turn can generate excess storage issues, under-utilised staff and contractors and an inability to meet customer deadlines.
Financial consequences range from cost overruns, penalty payments, a loss of orders and a drop in share price.