How to Identify, Evaluate, and Mitigate Supply Chain Risk

In a recent blog post, we explored how major world events from the last year highlighted the vulnerability of the global supply chain—from the Covid-19 pandemic to the Suez Canal blockage to the global plastics shortage.

Regardless of what industry you’re in, the resilience of your supply chain is crucial. How you respond to—and minimize—critical threats can mean the difference between a thriving company and one bogged down by production delays, penalties, damage to your reputation, and lost revenue.

Understanding how to mitigate supply chain risk is key to preventing costly interruptions, especially during times of global uncertainty.

Assessing Risk in Your Supply Chain: Identify, Assess, and Mitigate

A single supply chain encompasses a series of moving parts, each dependent on one or more steps that precede it.

Sourcing, procurement, production, logistics—all of these processes carry their own set of requirements and their own potential issues. To effectively manage these interconnected parts, you need a rigorous risk management process that covers the entire scope of the supply chain.  

Step 1: Identify risks 

Two types of risks exist in the world: known risks and unknown risks. It’s important to be prepared for both. 

Known risks may include vendor issues; supply chain shortage or stoppage; production issues like a machine breaking down or a failure to meet regulatory standards; safety issues or labor law violations at factories; and logistical problems like failure to meet compliance. 

Unknown risks are a little more difficult to prepare for. These may include force majeure issues like inclement weather or a global pandemic; geopolitical issues like war, strikes, and civil unrest; and lack of transparency on behalf of organizations. 

Managing known and unknown risks starts with identifying all these potential issues. Once the issues have been captured, document every single process of your supply chain in detail. That documentation allows you to move to the next step: evaluating your risk.

Step 2: Evaluate risk level 

Once you’ve identified each potential issue, design a scoring methodology to evaluate its level of risk. We recommend a systematic approach that consists of: 

• Assigning a number to the impact of failure
• Assigning a number to the risk it poses to the supply chain
• Adding the two scores together and working backward from the highest score

Issues that are deemed significantly low-risk can be moved to an “accepted risk” category. The high risk issues, on the other hand, indicate where your supply chain is most vulnerable. 

Prioritize the top 10 issues on your list. In the event of unforeseen problems, mending your weakest points first gives you a better chance at withstanding impact.

Step 3: Mitigate impact with preventive and reactive measures

Set contingency plans in place so that you’re prepared if a high risk materializes. There are many ways to mitigate impact. Here are a few ways we do it at Alchemy Industrial:

• Build a wide network of suppliers. Having a backup list of alternative, accredited vendors is critical in the event that your go-to supplier can’t deliver what you need.
• Create a plan for spare parts management. Think of it this way: if you get a flat tire but you have a spare in your trunk, the impact is minimal. If you get a flat tire and you don’t have a spare, you can’t drive. Digitizing critical parts ensures that spares are ready when you need them.
• Choose additive manufacturing. There may be opportunities to 3D print parts that were originally machined and save yourself time and money. The fast, on-demand nature of additive manufacturing can help solve supply chain disruptions.
• Localize the supply chain. A great way to mitigate global risk is to keep your supply chain close to home, like with Alchemy Industrial’s localized holistic manufacturing approach.