5 tips to manage supply chain risk in uncertain timesPosted Date : 2021-04-03
Supply chain decentralisation, data insights, and digitalisation key to mitigate risk
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
This famous Warren Buffet quote serves as a reminder to all businesses that – no matter what size or industry of operation – a risky supply chain – could be severely hurting on many levels, causing financial and reputational damage.
In today’s world economy, businesses are critically dependent on the global supply chain to respond to customer demands. The business failure of any supplier can seriously impact a company’s key performance metrics like sales, costs, and inventories. On the customer front, failing to meet commitments can lead to all sorts of negative outcomes. Worst case? Losing customers to competitors. In the social media age, a lot of damage can be done to a brand in a matter of five minutes.
The global coronavirus outbreak has resulted in significant repercussions on international trade and global economy. Majority of businesses across industries and countries have been impacted with disruption to supply chains and commerce. Costs associated with business interruptions have taken a toll on businesses. The crisis has exposed fault lines in the current supply chain network.
Many businesses are at risk
Research by global business data provider Dun & Bradstreet estimates that 1 in every 4 businesses in UAE fall under the “high & very high risk” category. According to D&B’s COVID-19 Commerce Disruption Tracker, approximately 55 per cent of the UAE businesses operating in high-risk industries have faced some form of disruption due to the pandemic as of February 2021.
In the third quarter of 2020, CRIF Gulf (Dun & Bradstreet UAE) gathered client feedback to assess the impact of the pandemic on business and operations. The study noted a high negative impact of the coronavirus pandemic on businesses. Many companies witnessed decline in revenues and cash flow as the primary impact of Covid-19.
Analysis also showed how businesses experienced delays in customer payments and faced issues in collection of receivables causing liquidity crunch. Dun & Bradstreet’s trade data shows a marked decrease in prompt payment performance in 2020, with the share of UAE businesses making on-time payments going down from 55.1 per cent in December 2019 to 10.1 per cent in June 2020.
Here are five ways companies can develop plans to prepare and reduce the impact disruptions can have on their bottom line:
Supply chain decentralisation
Covid-19 will redefine global supply chain management. The pandemic has caused businesses to rethink their supply chain management activities. Businesses are now looking to close the resilience gap and be prepared for future crises. “There is a pressing need for businesses to ensure supply security through supply chain decentralisation, and increased focus on resilience and digitalisation,” says Leroy Pinto, Head of Marketing – CRIF Gulf (Dun & Bradstreet).
Harness the power of data
The impact of Covid has been asymmetric, affecting different regions of the world to differing degrees at different times. Because of the asymmetric impact, locational data and regional dependencies are imperative.
“To create a robust supply chain that can withstand future disruptions, transformation strategies need to be deployed including near-shoring, less just-in-time supply chains, and multiple sourcing of raw materials/finished products. Businesses also need to maintain proper visibility and constant vigilance of supply chains.” explains Pinto, adding that reliable data as well as technology will play an important role in supply chain planning and building long-term resilience in distribution channels.
Implement supplier diversity
Majority of the trading firms in UAE have a business relationship with China. Factory shutdowns led to a steep decline in China’s industrial production, thereby resulting in a fall in exports from China. This disruption in China’s value chain has had severe implications on UAE businesses. In a lasting move resulting from these disruptions, businesses will look for alternative suppliers from various geographies to reduce reliance on any one supplier within a geographic region.
Localisation and rebalancing
The trend of near-shoring/localisation of supply chains will also gain momentum to avoid the inventory disruptions witnessed in 2020. The pandemic has also exposed the vulnerabilities of just in time production models. Businesses will look to consider a more balanced approach between stock piling and just in time production for inventory optimization.
Focus on resilience and digitalisation
A combination of data driven insights, due diligence and intelligent workflows will help businesses build smarter supply chains and ensure successful risk management.
• Enhance Supply Chain Visibility: Many companies have limited visibility into which of the Tier 1 suppliers have risks stemming from sub-tier suppliers, which could endanger business reputation as well as invite dissatisfied customers. Businesses need to have a transparent view of the entire supply chain, including suppliers and sub-suppliers to identify & eliminate direct and indirect risks.
• Improve Supplier Onboarding: Businesses need a defined supplier risk assessment process that incorporates both onboarding suppliers and ongoing monitoring. Supplier due diligence when onboarding new suppliers will help businesses improve efficiencies, maintain operations, and lower costs.
• Constant Supply Chain Monitoring: Continuous monitoring of suppliers is vital and helps prevent financial waste and inventory shortfalls, while ensuring a resilient supply chain system. Businesses can use supply chain analytics enabled by technology, to gain end-to-end visibility, ensure ongoing health scan, spot vulnerabilities, and grow business, while supporting business relationships in times of uncertainty.
Ultimately, risk management in the supply chain is crucial. To see the coronavirus’ effects on suppliers, businesses should be referring to a COVID-19 Impact Index which may help identify risks - which helps business leaders assess the real-time impact and potential business & supply chain disruptions.
This content comes from Reach by Gulf News, which is the branded content team of GN Media.