Risk is a part and parcel of any business, which is a reality that cannot be overlooked. Planning and handling of risk are crucial for the sustenance of any organization. The challenge lies in how well you can plan your resources with the help of the latest technology available to tackle the risks associated with your business. This is the key mantra to success.
There can be umpteen number of anticipated and unforeseen events that can occur both upstream and downstream in the supply chain management process. Such events have to be carefully scrutinized and directed from time to time to avoid unnecessary risks that can prop up in the course of any operations.
The entities that are a part of the upstream of an organization can be anything. It can be a supplier of raw materials or a manufacturing unit that produces goods. The downstream can include packaging units or delivery agents who are involved in transporting products to your end customers.
It is imperative to say that for better management of financial as well as operational risks, elements both in the upstream and downstream should proactively be managed.
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Here are three valuable techniques in supply chain management that will make a vital contribution to reducing risks.
Strategically choosing providers and suppliers for redundancy:
Strategic sourcing and selection of suppliers are of vital importance if you need to have a risk free operations running. We all tend to source out and assess multiple suppliers from a plethora of available suppliers. Many times businesses end up preferring a single supplier for their requirements. That is fine until one encounters a disaster and in many cases, it can be when a supplier faces financial breakdowns or possibly when their plant shutdowns.
This is a huge risk that cannot be overlooked by any business. Hence it becomes necessary to choose a supplier that has a well-balanced portfolio. The rule of thumb is to select a supplier that has multiple locations and one that can ensure data center redundancy. This way even if one of their plants fail to produce or locks down due to various reasons, supply chain operations are never hampered.
Good supplier insurance & limited liability contracts:
Businesses will have to contract with multiple external suppliers of products and services both upstream and downstream. Suppliers are external entities to the business and hence come with potential exposure to liability.
It is thus of absolute importance that a proper evaluation of the liability to your business be accessed right from the beginning of contracting suppliers. Three important aspects are required to be addressed while contracting the supplier. Supplier insurance, limitation of liability and the third being indemnification.
Efficient contract management:
Many times businesses tend to overlook this aspect when managing contracts with suppliers. Contract management is a vital business topic and a very time-consuming one. Hence it facilitates the need for an effective and automated contract management system.
Contract streamlining today is an emerging trend and newer styles of contract designs have enabled higher success rates in executing well-drafted agreements. Legal risks can exceed the business balance that can extend the contracting cycle, thereby hampering procurement efficiencies. It is better to have a concise and well-balanced contract document that is easily understood and accepted by suppliers.
There are many risk factors involved in the supply chain management process and a good starting point is to use these three proven techniques. It can help you in creating a more solid supply chain process that can contribute to your organization’s overall operational performance. Risk cannot be avoided completely, but taking intelligent risks can help you in providing maximum value to customers.