SUPPLY CHAIN
Bringing Certainty In Supply Chains
By Michael Nzule
Certainty is a cure to the headaches in supply chains !
One of the best ways to unpack certainty , is to look at the uncertainties . Uncertainty relates to the level of risk or probability in the occurrence of an event . Some of the events that bring about risk in supply chains include earthquakes or hurricanes , a last-minute order , delays in delivery by suppliers , or breakdowns in manufacturing equipment and unstable regulatory environment .
In the logistics industry , it can be argued that uncertainty occurs when decision makers cannot estimate or predict the outcome of an event or the probability of its occurrence . Uncertainty , therefore , increases the risk within the supply chains . Consequently , risks in supply chains are made up of the results of both internal and external uncertainties that impact the supply chain .
Some indicators of uncertain supply chains include unreliable suppliers , long lead times , poorly managed processes , poor quality - both in handling the cargo or inefficient services , leading to high costs and greatly diminished competitiveness . It is also very clear that in addressing risk , time becomes a very critical factor - this determines fulfilment of orders , the play for creating scenarios and the decisions that must be made .
Supply chains mostly cover planning , execution and delivery of movement of goods ( cargo ) and the attendant services . This covers both supply and demand sides of business . Key considerations that are critical in eliminating risks and creating some degree of certainty include flow of data and information , visibility , integration within the supply chain , timing of decisions , speed and pace of execution of the decisions , competitor activity including reaction and creating slacks . From the supply side , it is possible to conceive interventions to manage the suppliers of the suppliers in the chain - getting to the next level to understand the unique risk profiles , so as to effectively reduce the risk exposures .
The consequences of materialised risks in the supply chain are costly . These include unfulfilled orders , loss of customers , penalties on contracts and diminished
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Data brings visibility within a supply chain . Visibility drives the degrees of certainty . The data that is critical in supply chains ranges from location , quantity and quality metrics , to environment factors like temperature , in the cases of moving cargo that is temperature sensitive . competitiveness . In some cases , these can be dire , leading to collapse of well-established businesses .
How should the businesses , then , deal with uncertainties and risks in the supply chain ? The starting point is defining the risk profile of the whole supply chain . Being brutally honest and simulating whatever can go wrong and attaching the cost or price of each event occurring . Being the pessimist here will always help . See the darkest side - the loss that can occur in the event that the risk materialises .
Upon defining the universe of risks , the next logical step is to always objectively attach the probabilities of occurrence . The probabilities and the assigned costs lead to prioritisation of the appropriate interventions . This can be achieved through risk heat maps . The risk mitigation plans can be internal ( accommodation ) or external . For example , taking insurance covers or outsourcing activities to players who can deliver seamlessly given their speciality and capabilities . Management teams and leadership are advised to include risk management in the overall sourcing strategy . During execution , flow of information should provide early warning signs of failure to trigger corrective interventions .
Gaps in information undermine certainty in the supply chains . Information exchange programs are critical . This , supported by effective Supplier Management Programs ( SPM ), can drive certainty . Supplier management programs should of essence include rewards and performance penalties , mutually defined by the parties involved . The frequency of supplier performance reviews must be increased during times of heightened uncertainties .
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