5 Ways to Mitigate Supply Chain Risks Image

5 Ways To Mitigate Supply Chain Risks

By Sovereign Insurance
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Chances are that in the last decade your business has experienced one or more of the following: the effects of globalization, the need for outsourcing, the rise of eCommerce, increasing consumer demands and expectations, the impacts of climate change, a merger and/or acquisition or the integration of new technology into your operations.

 

These factors have opened up a world of opportunities for businesses, some have challenged the way they operate, and others have posed significant threats. All of them introduce a number of supply chain risks that historically weren’t prevalent.

 

In this challenging environment, it’s critical for businesses to develop plans to manage and mitigate supply chain risks. “A well-managed supply chain is a competitive advantage,” explains Sovereign’s VP Product Management, Tina McAvella. “It allows companies to get their products to market faster, more efficiently and more cost-effectively than their competitors.”

 

Tina takes us through five ways businesses can mitigate supply chain issues:

 

1. VENDOR MANAGEMENT: A thoughtful vendor procurement process ensures that supply partners provide the desired balance of cost, quality of product/service and timing of delivery,” says Tina. And vendor management best practices include stress-testing the relationship from time to time. “The practice should include understanding what redundancy the supplier has in their business model, their financial health, indemnity agreements, insurance requirements, and more,” Tina explains. “You want to do business with suppliers that have a well-established approach to risk management, so testing alignment should include a discussion around their risk management approach.”

 

2. CONTRACT MANAGEMENT:Building trusting supplier relationships is important, but it’s no longer enough to do business on a handshake,” says Tina. “If a relationship breaks down, for example, the lack of a contract outlining an exit plan can be a serious impediment to your business.” She goes on to explain how non-standard contracts that are not well understood can also cause issues. And these issues can become heightened when working with international trade partners where jurisdictional differences, language and cultural impacts are also in the mix. By having strong contact management practices, you’ll ensure all parties meet their obligations, including payment terms, quality of goods, level of service, and delivery.

 

3. BUSINESS CONTINUITY PLAN: A well-designed business continuity plan helps companies minimize risk in the event of a disaster or disruption. “5 steps for developing a business continuity plan offers a step-by-step guide for business continuity planning so you’ll know what to do if a supplier’s business is disrupted. “Companies can also review their suppliers’ business continuity plans to help them determine what they’ll do if disrupted,” says Tina.

 

4. DIVERSIFICATION STRATEGY: “Where possible, don’t rely on a single supplier for any aspect of your supply chain,” Tina advises. Having diversified suppliers in different geographic areas will enable you to mitigate risk if a supplier experiences disruption or goes out of business. “Supply chain redundancy—meaning having backup resources—will allow you to quickly adjust when there’s a disruption to the supply of a critical product or service.”

 

5. INSURANCE PROTECTION: “Insurance protection is available for certain aspects of supply chain risk, but not all,” says Tina. “For instance, interruption to your business caused by a fire at a key supplier can be covered whereas interruption caused by strike is not readily insured.” A knowledgeable insurance partner can guide you through the complexity and help you understand how your business can be protected.

 

Following the tips above will not only help you mitigate risks to your supply chain but can also help you optimize it – and this in turn can help you strengthen your business.

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