How to recover from supply chain disruptions

Risk mitigation is a crucial component of supply chain management. Preparing for potential disruptions is one of the most important yet challenging tasks faced by company managers, especially since there is an abundance of possible situations threatening operations at all times.

Unfortunately, damage control planning is something many companies tend to neglect. Last year, a study conducted by the supply chain management team at the University of Tennessee found that only about 50 percent of businesses have a recovery process in place to reference in the event a facility's operations are interrupted.

Importance of response planning
Companies of all sizes are susceptible to dangerous disruptions, with global supply chains being the most vulnerable. Which is why it is surprising that the report also discovered nearly all, or 90 percent, of surveyed organizations do not take potential risks into consideration when outsourcing.

It's understandable that managers are generally more focused on improving day-to-day operations, such as customer service, identifying cost-savings opportunities and driving revenue. However, disruptions along the supply chain have the power to severely impact financial growth and overall performance.

Between natural disasters, security breaches, safety and regulatory compliance and system failures, it is virtually impossible to anticipate what will be affected and when attacks may occur. But the best approach for supply chain teams to take is implementing strategic risk management practices that will help minimize monetary losses associated with disasters.

Choose and classify quality suppliers
The research report noted that the top strategy for risk mitigation is for supply chain managers to work with the best possible suppliers. However, many of those polled in the survey indicated this is a process that can take a couple of years to complete.

Manufacturing Business Technology recently reported that, in a webinar, the senior director and counsel of customer service at Maersk Line, Andy Tsukamoto, suggested that companies should assess whether or not the carriers they work with have adequate risk management plans in place. Knowing how their partners are going to handle emergency response operations can help supply chain executives anticipate which checkpoints along the line will face the biggest complications.

In addition, as businesses are becoming increasingly powered by the Internet of Things, supply chains are more at risk now for cyber attacks and security breaches than ever before.

"New efforts must focus on protecting intellectual property, defending against hacktivism and espionage, detecting embedded malware and ensuring continuity of operations," Intel Security Group Chief Technology Officer Steve Grobman explained in an Information Week article.

The source recommended that information security can be enhanced by identifying and classifying suppliers based on "the critical aspects of their contractual obligations" and using this to determine the level of access allowed. Grobman also added that validating privacy controls must occur on a regular basis.

Ranking and mitigating supply chain disruptions
The University of Tennessee research report found that insurance plans were the risk mitigation strategy supply chain managers used the least. But maybe this method should be a bigger priority. According to the source, working with certain insurance companies can provide a cost-effective solution to resolve a variety of issues.

To maximize risk coverage, companies should first determine which threats carry the heaviest financial impacts. One way to do this, the study recommended, is by utilizing the same strategy the military has been since the 1940s, an approach known as failure mode and effect analysis, or FMEA.

In this process, disruptions are ranked according to the severity of repercussions, chances the event will happen again and how possible it would be to detect the issue in advance.

By identifying, prioritizing and mitigating each potential threat, supply chains will be more resilient to unexpected disruptions.