If you think supply chain risk management is not an important thing to focus on, you are making a mistake! In order to explain the reason we make this claim, we have put together a guide on why supply chain risk management is crucial in today’s business environment.
The cost of failure on a business today
Supply chain risk management is crucial in today’s business environment because of the cost of failure. Just consider: amidst the growing operating costs, running your business at a profit is already tricky. Even if you try to do cost-effective professional logistics, the best you can achieve is slightly reducing expenses. So, anything that impedes the proper running of your business cuts deeply into your profits. It still costs you even if it seems like a relatively minor inconvenience. For example, an accident on a road you were planning to direct your truck fleet through would force you to redirect them in a hurry. If you do not do proper supply chain risk management and have a plan in place, you’ll have to use considerably less efficient routes. And as a result, your fleet will use up much more fuel than intended.
Fines and revenue cuts you might incur
Of course, the upfront costs are not the only thing you need to keep in mind when discussing why supply chain risk management is crucial in today’s business environment. Equally important are the fines and revenue cuts you may face due to missing a deadline. If you ignore supply chain risks and try to plan your deliveries so you can just make them in time, it’s only a matter of time before you go over the stipulated deadline. At best, you would be held responsible for breach of contract and your payment reduced. At worst, you might be sued for the delays this causes to the other business and lose a lot more money that way. We have already mentioned how difficult it is to keep a business profitable nowadays. So, such a hit to your finances may very well prove to be devastating.
Improving your business operations
You need to understand that supply chain risk management is not just about planning for eventualities. It’s also about ensuring that your business works as well as possible. And this protects you from accidents and improves the quality and efficiency of your business operations. Let’s take a look at the previous example of using more fuel due to road congestion or accidents. Well, even in an ideal scenario, the business in question just doesn’t face a loss.
On the other hand, a business dedicated to ironing out supply chain risks would invest much more time in route planning. Through this, they would not only have several viable routes that are just as good. They might even be able to find more efficient routes that let them save fuel. And, by not using fixed routes and using dynamic routing, they’ll always be ready.
An emphasis on employee training and competence
Similarly, there’s another advantage to supply chain risk management. Since a lot of it comes down to reducing the chances of errors, an emphasis is placed on the competence of your employees. This means putting more effort into proper workplace protocols and rules and thoroughly planning their training. If you are not familiar with the current situation in the logistics industry, then know this: it’s tough to find experienced employees at the moment. Even competitive pay is not enough to get them since the demand for such employees is exceptionally high. Untrained employees are slower, worse at their job, and far more prone to accidents. All of which proper supply chain risk management through employee training can fix! And as the professionals from Professional Movers Ottawa point out, the success of a business is mostly down to the quality of its employees. So investing in them is always smart.
Difficulties with sourcing replacements for damaged goods
One of the worst supply chain risks is your goods getting seriously damaged in an accident. Especially if you are a logistics company simply in charge of transporting them. Even if the transportation of goods is just a part of your supply chain, replacing what was lost can be very difficult nowadays. Sourcing reliable suppliers is very difficult since most small-scale suppliers have suffered severe financial distress due to the climb in operating prices. Even if you want to get more goods for them at a premium, they typically do not have much stock on hand.
On the other hand, larger suppliers are likely to have a more distant relationship with your business. And even if they have some stock of the goods you need, they may not feel inclined to help you. You might not even be able to contact them in time to make a difference.
The importance of reputation and its maintenance
Supply chain risk management is crucial in today’s business environment because it protects your reputation. After all, the current global economy is rough on everyone. So, every business is looking for reliable partners they can actually count on. If your supply chain risk management fails and it affects your partners, they will likely feel compelled to find someone to replace you, especially if problems become frequent. One of the most important things to know about the world of logistics is that reputation is significant if you want to get hired. If you get a reputation as unreliable and a bad partner, you’ll quickly find it difficult to get new clients. Which, naturally, would lead to a slow haemorrhaging of your business.
Working on your supply chain risk management
Now that you know why supply chain risk management is crucial in today’s business environment and its importance, you can put effort into improving your business with it in mind! Of course, you should not rush too much to change your business model. Haste can often lead to as many mistakes as bad supply chain risk management practices!
