The Five Most Commons Supply Chain Risks and How to Avoid Them

The current economic climate combined with an increasingly complex global business and regulatory environment has made supplier risk greater than it has been in decades.  Supply chain operations that are not carefully managed can lead to negative outcomes which can threaten a company's ability to make decisions quickly enough to protect the bottom line.

The following are common mistakes made by companies:

1. Trusting historical trends.  For example, financial data covering the last five years may not reflect current conditions since things are so different from even one or two years ago. Current data from the past six months should be closely examined, and it should be continually updated
 
2. Disregarding obvious risks due to outdated information. Be sure that the data you are using is truly current, and does not lag.  An example where this would be particularly important would be when using a market index to hedge against cost increases.  If the index lagged by several months, it would not provide the information needed to hedge effectively. Be certain you understand the data you are using. 
 
3. Overlooking hidden risks due to lack of knowledge of your supplier. Hidden risks in this case refers to events that are unforeseen but not unforeseeable. It's important to know your supplier's culture and habits. For example, Chinese manufacturers shut down for the Asian New Year in late January/early February, while many European companies slow production during the month of August. Failing to anticipate these or other predictable events could lead to a supply disruption.
 
4. Underestimating collaboration tools and communication needs for managing downstream suppliers. A lack of effective internal communication within companies could mean that no one person understands the big picture. The supply chain manager might know that a supplier's credit rating is falling, and the fulfillment manager may know that the supplier is also failing to meet orders. These two pieces of information together demonstrate that there is a major problem supply problem that must be addressed immediately. Information about suppliers must be leveraged across organizations so that leading indicators are not overlooked.
 
5. Limiting risk assessment by relying on too few factors. Credit ratings no longer provide a reliable indication of the financial health of suppliers. It's imperative that multiple metrics on suppliers be collected and analyzed.  At a minimum, this should include delivery performance, product quality, and factory audit results.

Adapted from: http://bit.ly/98jeOr