• Supply Chain

4 Tips for Mitigating Risk in the Supply Chain

Written by Elias Schoelmann
March 8, 2017

A poorly executed Supply Chain strategy can pose significant risk to a company's bottom line.

A poorly executed Supply Chain strategy can pose significant risk to a company’s bottom line.

Far too often companies underestimate just how critical mitigating risk in the supply chain is to the success of their business. Poorly-run supply chains can have dramatic and often far-reaching impacts on operations for years.

Take for example Adidas. In 1996 the athletic shoe and attire manufacturer, tried unsuccessfully (twice) to integrate a warehouse management system into its operations, according to Supply Chain Digest. The second time the company tried launching a new WMS, it did so before it was ready, possibly because management felt aggravated by project delays. The end result: Adidas was unable to meet customer demand – filling only 20 percent of its $50 million North American orders – and it lost incredible market share for years.

Adidas could have prevented problems simply by using the correct warehouse management system from the start, and then showing more patience before launching the second solution.

READ MORE: Solving common challenges in supply chain management with software automation »

No more was this type of impatience brought to light than when Greg Rake, senior vice president-supply chain at Pier 1 Imports – maker of home furnishings – talked about how businesses value supply chains that ship products blazingly fast.

“The faster you get products to market, the more full-price sales you get,” said Rake. “When you look at what we do, we understand there is some period of time where we bring in a brand or a new product line, color, or style, we have some sort of a proprietary system – or timeframe – where we actually are allowed to be the only company in the market that has that style, color or whatever that is.”

Rake then followed up to say that if larger businesses replicated his unique product, “it’s going to be a bad day.” That’s why it’s crucial Pier 1 Imports finds a way to get their products into the hands of customers well before competitors do. This allows the company to enjoy full-price sales for a certain time.

There’s no getting around it: Companies value speed. The problem is, some of them – such as Adidas – might become too impatient when either launching a new WMS or making changes to their businesses’ operations. This causes employees to make grave mistakes that potentially sets them financially back for years.

It’s crucial managers consistently monitor their company’s SCM strategy for flaws, evaluate new ways to update it and carefully integrate new solutions only when needed but in the most efficient way possible.

Managing Supply Chain Risk Not a Top Priority Among Companies

Adidas isn’t the only company that’s failed to appreciate the value of a smoothly operating supply chain and SCM plan. Unfortunately, many businesses neglect to assess their operations for risk. A report published by AT Kearney & Rapid Ratings indicated that managing supply chain risk is not much of a priority for procurement. Most don’t have a strategy to ensure supply chain stability, and very few have a plan in place to ensure their supply chain operations comply with environmental regulations or can handle drastic changes in supply and demand.

To solve this problem, we propose the following:

1. Develop the Correct Supply Chain and SCM Strategy:

This SCM strategy should address a number of processes and procedures to help managers efficiently maintain operations while also protecting them from potential issues. These problems could range from internal happenings (work shortages) to external events (a supplier closes shop or an environmental disaster disrupts the transportation of goods).

2. Breakdown the Supply Chain into Segments: 

Some team members should deal with transportation logistics while others solely focus on the supply chain management system.

3. Hire the Right Employees: 

To ensure your supply chain and management strategy goes off without a hitch, you need to fill these segments with the correct employees. Before you look outside the company, think about hiring from within. These workers have cross-functional experience, which allows them to make more well-informed decisions.

4. Monitor the Supply Chain Strategy:

Managers should consistently evaluate the supply chain for pain points and take the necessary steps to fix them. These, of course, will be company-dependent.

Here’s how taking these steps can benefit the business:

  • Improved Efficiency: Companies that invest in their supply chain management procedures will usually find their company operates more efficiently. Businesses that don’t, like apparel and athletic shoe retailer Finish Line, could find themselves enduring quarterly revenue losses and market share disasters, reported Supply Chain Digest. For years, the company was using an old WMS from the former EXE technology and decided to upgrade to a new WMS from a different software company to support Omnichannel fulfillment and other warehouse processes. The system’s implementation failed for multiple reasons, possibly due to system glitches, poor consulting and an awful strategy from Finish Line, which rushed integration, contributed to the system’s initial failure.
  • Increased Collaboration: Businesses that devote time and resources to improving their supply chain and SCM strategies will also find their company’s components fit together like a perfect puzzle. Sales and logistics are two different departments, but they all have access to the same type of information. This helps them work better together. Take, for example, a logistics team that is backed up in orders due to a holiday rush. The sales management team won’t necessarily stop taking sales, but it’ll instantly know that it needs to inform customers of the delay. This increased collaboration can set expectations and improve customer relations.
  • Improved Bottom Line: A recent Deloitte study of 421 business leaders in 10 countries found that nearly 80 percent of business leaders who operated strong supply chains reported revenue growth that came in significantly higher than the industry average. This is in comparison to 8 percent of companies that have weaker supply chains that reported higher than average revenue growth. The proof is in the statistics: Companies that fix supply chain issues, if they have them, and operate a well-oiled logistics network will typically generate more revenue than those that don’t.

A company’s bottom line is directly impacted by how a company manages its supply chain. If it fails to take the necessary steps to either fix supply chain and SCM problems, it could face similar fates as Adidas and Finish Line.