With major disruptions accelerating the “reshoring” of manufacturing back to the U.S. – the trade war and import tariffs, and now the pandemic – the tremendous effects on global supply chains have been seemingly the knock-out punch to globalization as we once knew it. How manufacturers respond to supply chain risks and disruptions will make all the difference in how it plays out.
A recent report from McKinsey Global Institute predicts that over the next five years companies will change their supply chains in a huge way. It estimates that “16 to 26 percent of exports, worth $2.9 trillion to $4.6 trillion in 2018, could be in play — whether that involves reverting to domestic production, nearshoring, or new rounds of offshoring to new locations.”
“It’s crucial right now that manufacturing businesses reevaluate how and where supply chains function in the face of rising threats,” advises Justin Mentele, partner at K·Coe Isom.
“These disruptions have forced us to look at supply chain differently, and the bottom line is, those who don’t will suffer the consequences.”
Top 5 Supply Chain Risks – How Vulnerable is your Business?
Supply chain is no longer a “given” for manufacturers as it once was. The potential threats to business at the supply chain level is real, and right now many operations are vulnerable.
“Manufacturers need to evaluate these risk areas closely, and mitigate risks immediately,” says Mentele. And perhaps as a silver lining in this exercise, Mentele adds, “Often times we uncover a bonus upside. Through the process of assessing and mitigating risks, manufactures can discover cost-cutting measures and long-term benefits.”
Below are five key risk areas in supply chain that should be evaluated:
- Geopolitical environment risk:
Businesses should not ignore the real dangers of what even the smallest tweak to the political environment can (and has) done. We have witnessed border shut downs without any predictability. The need to diversify vendors and incorporate back-up vendor plans is imperative to keep business operating smoothly.
- Inventory risk:
Evaluate and assess your supply chain management style. “Just-in-time” manufacturing is no longer a viable option today as it leaves too many opportunities to run short on inventory. Not only does an inventory deep-dive help to move your business forward strategically, but it also allows for enhanced performance through managed inventory levels, lead times, and cash flows.
- Sustainable operations risk:
Sustainability is a broad term for manufacturers – ranging from natural and environmental effects on the Earth, to social perception and brand reputation stemming from supply chain sourcing. Both should be assessed and managed proactively. Manufacturers need to investigate third and fourth party issues. Be able to provide complete supply chain transparency and assurance that your vendors, and your vendors’ vendors, have no issues (human trafficking, poor labor rates, child labor, etc.).
- Technology risk:
Cyber criminals are always looking for vulnerabilities to compromise your business. Just protecting your business with sophisticated security tools is not enough. With 59% of companies affected by cyberattacks through third-party security breaches, it’s imperative to check that your suppliers have the same methods of protection in place.
- Talent risk:
The COVID pandemic has highlighted the weakness that manufacturers face when unable to operate without a full workforce. It’s important to strategically evaluate how to utilize employees to gain efficiencies, especially in scenarios similar to the outbreak, where companies faced the possibility of losing their entire shop floor.
Additionally, make considerations for long-term capital investments like co-bots for alternative manpower. When manufacturing businesses compare the cost of business being down, versus the operational gains and competitive advantages long term, computer assisted automation is a valuable consideration.
It’s crucial that companies thoroughly evaluate their supply chain to expose risks, manage outcomes, and mitigate issues that could make or break their bottom line.
Contact K·Coe’s specialized manufacturing team to identify, manage, and mitigate supply chain risks to your business. Our advisors can provide solutions and guidance for smart strategies and bottom line results.