Managing Retail Supply Chain Risk
Deb Marotta, Vice President for Retail at Hitachi Solutions America, considers supply chain risk mitigation in the retail sector.
The supply chain is the gas that makes the retail motor run. Without it, you have no product to sell, no inventory to stock, and no revenue to earn. In the world of retail there are always incidences that disrupt the supply chain, throwing all operations out of whack and leaving retailers to scramble to pick up the pieces. But what if you could get ahead of the disruptions?
With supply chain risk management, retailers of all shapes and sizes are taking advantage of tried and true strategies that mitigate risk and set them up for success. To implement supply chain risk management processes, it first helps to get the whole picture of the supply chain and what risks you might be facing.
Supply Chain Risks & Awareness
Supply chain risk management (SCRM) is the process of taking strategic steps to identify, assess and mitigate the risk in your end-to-end supply chain. There are internal and external risks that can disrupt the supply chain, and it’s helpful to understand the difference.
External Supply Chain Risks
As their name implies, these disruptions to the supply chain come from outside your organization. Unfortunately, these risks are the hardest to predict and usually require the most resources to overcome. Some of the largest external supply chain risks to be aware of are:
- Demand Risks – When you miscalculate product demand, usually caused by lack of insight into year-over-year purchasing trends or unpredictable demand.
- Supply Risks – When the raw materials you rely on are aren’t delivered on time or at all, caused by disruption to the flow of product, material, or parts.
- Environmental Risks – Anything socio-economic, political, governmental, or environmental disasters that throw off the timing of any aspect of the supply chain.
- Business Risks – When anything changes in relation to entities you depend on to keep your supply chain running smoothly, i.e. purchase or sale of supplier companies.
Internal Supply Chain Risks
Even though most internal supply chain risks are those occur within your operations and control. Internal risks are within your control and can be tracked and identified using more robust data analytics programs, IoT capabilities, and more. But as in any business, they still happen. Internal supply chain risks to look out for are:
- Manufacturing Risks – When any component or step in your workflow is disrupted or caused to fall off schedule.
- Business Risks – Occurs after changes or disruption to standard personnel, management, reporting business processes.
- Planning and Control Risks – Caused by inaccurate forecasting, assessment, and planning of production and management.
- Mitigation and Contingency Risks – The fallout that occurs when businesses don’t have a contingency plan for supply chain disruptions, i.e. when they don’t have a backup plan.
Having a complete picture of the risks you’re susceptible to should help retailers get ahead of potential disruptions to their supply chain. Even though awareness is a positive first step, there are extra precautions and strategies that can be put in place to improve your odds even more.
Supply Chain Risk Management Strategies
Incidents happen in the world of retail — there’s no getting around it. In today’s connected and digital world, mitigating all risks within the supply chain is difficult due to globalization and potential cyber interference. However, there are steps you can take to minimize risk as much as possible. These 7 tips and strategies will help you mitigate and react quickly to supply chain risk.
PPPR Management Model
The PPPR Management Model stands for prevention, preparedness, response, and recovery — a common risk management strategy implemented by organizations and companies around the world. The name is pretty self-explanatory, but this strategy calls for:
- Prevention: Safeguards implemented to prevent any supply chain disruption.
- Preparedness: Have a contingency plan in place in case of emergency.
- Response: The execution of said contingency plan and total effort minimize the effects of the disruption.
- Recovery: Get back on track and running at normal capacity as quickly as possible.
Managing Environmental Risks
Environmental risks are a bigger consideration than ever, considering the current rate of climate change and the impact it has having on shipping and transportation routes around the world. Retailers need to be aware of these changes and impacts, and have a response to these potential disasters.
Solutions might include stockpiling products during known periods of environmental disasters (like hurricane season) or looking to find suppliers and distributors closer to your center of operation and the end point of your supply chain.
Bolstering Cyber Defenses
The larger and larger role that IoT and digital technologies have played in optimizing operations has been largely positive, but it also makes retailers vulnerable. Supply chain risk management now must extend to cyber security to protect the flow of product and goods.
Examples of cyber security threats in the supply chain include:
- Network or computer hardware that is delivered with malware installed on it already
- Malware that is inserted into software or hardware
- Vulnerabilities in software applications and networks within the supply chain that are discovered by malicious hackers
Creating Supplier Financial Stability Visibility
A risk-prevention mechanism that can be used in response to the external business risks that comes with dealing with outside suppliers. Retailers can now use predictive financial stability reporting that is provided by a major credit rating agency on thousands of potential suppliers. While this won’t necessary help with suppliers or providers already in place, it can help retailers seek out more secure business relationships and in turn lower their vulnerability to supply chain risk.
Implementing a Business Continuity Plan
We know disruptions occur in the supply chain – they are simply unavoidable. While we obviously try to minimize risk and cut out unnecessary risks, there should still be a contingency plan in place in case of supply chain failure. Surprisingly, many companies fail to implement this safe guard.
Seventy-three per cent of companies surveyed for a report by Accenture indicated they have experienced supply chain disruptions in the last five years, while only 17% indicate that supply chain risks are formally identified, assessed, quantified, prioritized, and therefore planned for.
Internal Risk Awareness Training
Management isn’t the only area of the organization that can assist in risk mitigation. Everyone involved in the company can help improve supply chain safety if they are taught what precautions to take and what warning signs to look for. McKinsey calls this “building a risk-aware culture.”
This goes for both internal and external risks. Retail employees can be updated on computer and internet best practices to improve cyber security. They can also provide first-hand insight on demand, busy seasons, and can provide feedback on forecasting.
Consistently Monitoring Risk
Although often taken as a given, consistently monitoring risk is the key to best protecting retail operations. Many organizations feel secure once they’ve implemented a risk-mitigation framework, but the work doesn’t stop there. Every level of the supply chain should be monitored and tracked for risk indicators.
Companies can use scalable retail digital solutions that help monitor and track various aspects of the supply chain. This not only provides security, but also insights into the many facets of operations that can be optimized and streamlined for efficiency. These digital tools provide robust data insights that can be leveraged throughout the retail organization.