The 7 “Don’ts” of Supply Chain Risk Management

An August 30 fire in an upstate New York distribution centre for retail chain Gap threatened to cause fulfillment difficulties throughout the Northeast US later this year. The structure accounts for 10% of the company’s owned and leased warehouse space and one Wall Street analyst speculated this would cause trouble for the retailer in the Christmas season.

South Korea-based shipping giant Hanjin was figuratively going down in flames around the same time. The world’s seventh largest shipping company carries almost 8% of trans-Pacific trade volume to the US, prompting the National Retail Federation to issue a statement expressing concern over the millions of dollars worth of merchandise that is now stranded in ports and cargo holds, posing an even greater threat to a greater number of supply chains than the Gap fire.

“Retailers are working with all of their service providers to find ways to get their cargo moving to ensure that there is no or limited interruption in the supply of merchandise,” an NRF vice president wrote.

The Fishkill fire and the Hanjin collapse may illustrate the need for contingency plans in the event of supply chain disruption, but a surprising number of companies don’t take adequate precautions. A 2014 survey of 150 supply chain managers in the US showed that 47% did not have a backup plan in the event that disaster knocks out a factory or distribution centre. Indeed, only 25% of a typical company’s end-to-end supply chain was being assessed in any way for risk.

Countless retailers affected by Hanjin must now scramble to coordinate their far-flung supply chains if they want to maintain inventory and order fulfillment. This is going to cost them, whatever their risk management plans were, as shipping costs have already begun to soar.

In the case of the Gap fire, a spokesperson said the company has contingency plans in place “working across our North American network of distribution centers to continue to serve our customers.”

A large retail chain obviously will require specific risk management tactics to that of a smaller retailer or wholesaler, but the general principles are the same. Here are the seven sins you should never commit:

1. Don’t ignore potential risks.

   You can’t see the future, but you can imagine what will happen if a supplier goes bankrupt, or a storm knocks out a major highway, and it’s not that difficult to plan for such scenarios. Consider your entire supply chain, from customer to suppliers, to gauge where potential disruptions might arise.

2. Don’t rely on sole-suppliers.

   It’s good to maintain a close relationship with a supplier, but even the best relationship is no guarantee against potential failure. Always be ready with alternative suppliers.

3. Don’t limit your logistics.

   While we’re at it, it’s also a good idea to have multiple transport and shipping options, and/or to work with 3PL providers that have their own contingency plans if one of their trucking partners, say, gets stuck in the mud.

4. Don’t keep too much inventory.

   Maintain inventory as close as possible to optimum; the less inventory, the better. Forecasting based on historical activity from a fully visible supply chain will indicate what your baseline should be under normal circumstances, and a rational place to start planning under worst-case scenarios.

5. Don’t forget to secure and backup your data.

   Knowledge is everything. Losing data due to a technology glitch can be just as disruptive to your supply chain as a sudden break in the supply chain.

6. Don’t take your eye off the inventory ball.

   Keep track of what deliveries you expect from your suppliers. Catching a missed deadline when it happens can help you distinguish between a one-off glitch and systemic supply chain problem.

7. Don’t be a hog.

   If you’re the only person in your organisation responsible for replenishing your supply, it might be a good idea to let someone else in on the tasks. On a similar note, experts suggest sharing your forecasts with close suppliers, and to collaborate on some contingency planning .

Click here for more information on how Cin7 can give you the inventory management functions you need to help mininise the impact of a supply chain disruption.

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