COVID-19 forced many companies to close their operations, which caused a great deal of disruption for numerous businesses on both direct losses and their revenue stream.
With America trying to “re-open” there is a host of issues that need to be wrestled with. One of the areas that, we think, might be low on the list for many companies is how their supply chain has been affected and will continue to be impacted by COVID related issues. Having latent supply chain disruption can wreak havoc on a business already challenged by the shutdown. This type of risk needs to be understood, so the company can plan for alternatives.
Recently, RIMS posted an excellent article on this subject and we wanted to be sure it was on your near term reading list.
While other “return to business” risks are more apparent, a supply chain disruption is a challenge that companies could face in the months ahead of “re-opening” which would hamper progress. There are countless supply chain risks that are coming to the forefront of the discussion in many (virtual) board rooms these days, such as delays in product production, delays in shipments, availability of containers, availability of warehouse space to store inventory, and the ability for companies to evaluate supplier and manufacturer resiliency.
CFOs and Risk Managers should be ever aware of the reliability and resiliency of their business’ critical vendors. Senior Leaders should do more than consider a critical vendor’s ability to deliver on their obligations consistently – be it a supplier, manufacturer, or otherwise – including first, identifying any such critical vendors, then identifying back-up vendors which could be used. It is also crucial to have a specific plan for what happens if a critical vendor “goes down” or has a major disruption. Having a plan of action that can be distributed throughout the organization, as needed, so employees can receive clear and concise direction on how to act effectively is another critical component of the supply chain risk management. Understanding the resiliency of ones’ vendors is only effective if a company has the preparedness and flexibility to address challenges quickly when they arise.
Companies should use the COVID-19 pandemic and resulting challenges as an opportunity to learn about, both, their own ability to adapt to global changes and their critical vendors’ ability to “weather the storm” regardless of what that “storm” looks like. Whether a company uses a full Enterprise Risk Management (“ERM”) system for their business risks or has a more ad-hoc approach, there are some simple, yet effective, tactics to use to address supply chain risks. Below are some suggestions on what a company can and should do to better understand vendor resiliency:
- Create a plan that can be easily and quickly implemented should a disaster occur that takes out a critical vendor; what is the back-up plan? The immediate response teams should have simple and specific directives on how to mitigate the damage the loss of a critical vendor could incur – there should be a succinct plan for the first 24 hours, 72 hours, 1 week and 1 month.
- Prepare. Prepare. Don’t wait for the risk to emerge before considering the response. Proactive round-tables with Senior Leaders, while also involving input from lower-level management, will result in a broader spectrum of risks, that should be considered and realistic responses to each potential pitfall.
- Even if not done on a true ERM basis, using a simple scorecard to identify risks and their likelihood and impact, identify the top 5-10 questions for vendors to understand their resiliency such as:
- How quickly and easily can factories allocate inventory from one to another should a major event or casualty occur?
- If a vendor is impacted by a major disaster, what redundancies do they have in place to be able to resume normal operations?
- How replaceable are the employees of a critical vendor? Understanding the “Key Man” risk of your critical vendors is worthwhile. If a vendor loses a worker with a critical skill set, how quickly can that person be replaced to resume activity at the same proficiency levels?
In 2011 The ALS Group published an article in Contract Management magazine that provides helpful guidance on doing a more thorough review of a company’s supply chain and the risks associated with same. It is worth a read to supplement the issues to consider on this important risk.
Whether you are new to the ERM approach or have a full ERM system in place, The ALS Group can help navigate risks that could plague a company while identifying specific risks, preparing strategies, and creating solutions to embed into the company’s strategic planning. Do not be reactive to your company’s supply chain risks, be proactive and prepared.
If you need more information on any of the topics covered in this blog, or need help with any risk related issues please contact Nicholas Sica, CRIS, Vice President, at The ALS Group, at 732.395.4263 or [email protected].
