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Risk Management – Putting Out the Fire Before It Even Starts

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As supply chains become more global and the focus increases on JIT to boost speed and profitability, risk management becomes a key topic for supply chain managers and CFOs. What are the right risk management issues to consider? Many companies develop strong capabilities to react once an incident occurs,  like putting the fire out if your house catches fire. But how do you minimize the damage before it occurs?

First, consider what contingent action you will take. These actions include things like having the proper insurance in place to help recover from the incident. Did you know you could actually insure the supplier’s facility? You can also get several types of business interruption insurance to help make up for the lost revenue you might experience from the risk event. Talk to your property and casualty insurer and specifically ask about both business interruption and marine insurance.

Second, consider preventive action. This is the best way to manage risk. Develop risk programs with your key suppliers before risk events occur. Also consider Design for Supply Chain Management (DSCM) to design out parts that represent significant supply chain risk. Regionalization of suppliers helps to reduce the risk of natural disasters. Sole sourcing parts while dual sourcing technologies maintains the effect of volume to reduce pricing while simultaneously reducing risk.

Managing risk in a global economy is a high priority for companies today. Managing both contingent and preventive responses is critical for success.

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