The moon landing never happened. Lightning never strikes the same place twice. Pigeons blow up if you feed them uncooked rice. As you can see, unsupported, and at times ridiculous, myths are all around us. The world of supply chain management is no different according to Bill DeMartino, General Manager of North America at riskmethods. This was driven home during a recent webinar entitled, “Five Common Misconceptions in Supply Chain Risk Management.”
The session brought to light the five prevailing fallacies in managing risk and provided intel into how businesses can avoid falling victim to the crippling losses they can create. Here are those myths:
Myth #1: "We should focus our risk efforts purely on our top suppliers –applying a Pareto approach."
Primarily focusing on the 20% of your suppliers that cover 80% of your spend may make sense for indirect materials, but that shouldn’t be applied to your overall supply chain risk management. Any component in your supply chain could cause manufacturing delays or a shutdown. And when it comes to your company’s image, it doesn’t matter how small the spend is with a supplier. If something nefarious is occurring, there will be a social impact and you could suffer significant damage to your brand.
Myth #2: "If we analyze and approve all our new suppliers when we on-board them - that is enough to protect us."
This mentality creates unwarranted confidence. True, each relationship should begin with thorough analysis, but organizations and the business environment as a whole are not static. A continuous review and assessment of the supply base is required for risk mitigation to remain in full force. There are real-time fires that upfront and periodic information collection will not extinguish. You need constant information awareness to get ahead of the future challenges that you’ll encounter.
Myth #3: "We have great supplier relationships - they will tell us if anything is happening we should know about."
This is naïve and akin to the fox watching the henhouse. Buyers typically find out about suppliers going bust after the fact. Your contacts in sales might not even be aware that their firm is in trouble, let alone divulge that information if they are privy. And these folks surely aren’t aware of all of the risks that are out of their control or jurisdiction. It’s incumbent upon you to go above and beyond your established relationships to protect your company.
Myth #4: "We’re okay because we’ve worked with this supplier for 20 years and never had a problem."
This operates on the assumption that the business environment is stationary and nothing will change moving forward. You should always strive to seek out alternative sources to validate your information. Your supplier’s sales team is unlikely to know all of the risks you may encounter. Don’t rely on historical relationships and trends as the only indicator of what your organization is going to come across in the future, because inevitably these will change.
Myth #5: "We’re covered because we have more than one supplier for all our key purchase items."
What about tier 2 reliance? Certain events could affect all of your suppliers in a category in terms of supply or logistics. When that happens, how can you be sure that the supply you need will be available? You must have the awareness and ability to react quickly so you don’t fall behind. Because don’t forget – your competition is trying to lock in the best option for supply as well.
By being cognizant of these five myths and the proven concepts they violate, you can decipher the best supply chain risk management strategy to insulate your company for the expected, and more importantly, the unexpected.