3 Ways Risk Mitigation Planning Is Like Playing Supply Chain Roulette

Published : April 9, 2015

two-businessmen-in-a-warehouse-3In an ideal world, a business could accurately plan for any possible contingency without taxing their resources or having to make a divinatory call before disaster struck. If business is anything, it's not ideal. And the more individuals and companies involved with bringing something to market, the more complex and unique the supply chain risk mitigation strategies need to be. Yet, no matter how complex or simple your operations, there are always 3 factors that remain in play.

1. Demand Uncertainty

The factors that determine a successful presence in the marketplace are long-winded and rapidly changing. Something as indefinable as fickle consumer loyalty can send a product spinning off of its target sales track, and something as small as a celebrity comment can send sales soaring overnight.

The safest bet would seem to be stocking a median supply of products and weathering the occasional ups and downs, but missing an opportunity to grow or failing to protect against overstock can have a very negative impact on profits. How does a business build safeguards for what is largely an uncontrollable variable? Increasing marketing and dropping price points on end products are enticing bait, but if there's no fish in the pond it won't matter.

Solution: Talk to your supply chain firms and discuss contingency plans. Find out how much they'll cost to implement, how quickly they can be rolled out, and so on. Knowledge is power here, so don't get caught scrambling when you're looking into the void of unfulfilled orders or overflowing shelves.

2. Supply Uncertainty

Shoring up supply obstacles in supply chain risk mitigation means taking a holistic approach in considering your suppliers. Professor Scott Webster, in a profile for Arizona State University, recommends that the impact of your decisions on your suppliers' firms should be considered as closely as the impact on your own. Consider, for example, Amazon's efforts to further tie their fate to that of their virtual army of individual sellers. As AppEagle's Karla Lant explains, the infamous "A to Z" supplier has started opening its warehouse shelves to high-volume sellers, taking over sellers' fulfillment processes for a fee while boosting their own fill rate. Expect to see more of this synergy in the near future, as more competitors enter the marketplace and even legacy brands fall back on creative solutions to stay competitive and keep products in stock.

Solution: Consider thinking outside the box and approaching a rival to diversify your supply chain risks by pooling resources. Hau L. Lee of the California Management Review suggests this unorthodox approach to minimize disruption in the event of a shortage.

3. The Tangle in the Center

Outside of traditional supply and demand, that of providing products for consumers that desire them, there is also a separate demand for—and supply of—certain calibers of manufacturing and fulfillment that must be considered as well.

The dividing line between supply and demand issues in fulfillment is drawn here, where inter-company actions and intra-company reactions begin to intermingle. Bill Bacon of Supply Management points to the automotive industry’s increased scrutiny on parts in the wake of multiple 2014 recalls as a prime example of what can happen where the two meet.

Companies affected by these recalls needed to reassure both their brand patrons and the end consumer that manufacturing was both accountable and reliable to start the slow climb back to consumer confidence.

Solution: Transparency emerged as a beneficial trait in post-disaster landscapes like the auto industry's, and has now become something of a standard in both the supply and demand camps. Make it a goal to share at least basic stock and sales data with suppliers that could use it, with NDAs in place, if necessary.

If you find yourself constantly playing catch-up and racing to fill in supply chain and demand gaps, it may be time to objectively consider the entirety of your strategy. Assess, plan and rebuild it to respond more dynamically to threats, and you won't have to worry if you're over-planning or under-planning your supply chain risk mitigation.

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Topics: Supply Chain Logistics

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