The Importance of Optimizing Your Supply Chain with Risk Management

Author: T Nguyen
May 04, 2012

What is risk management?  It is the process of looking at potential sources of disruption to your supply chain that can create financial and physical damage.  The next step would involve the business and supply chain leaders evaluating the assessment and fix the weaker points and preemptively doing their best to prevent the risk from happening in the future.  It may be impossible to prepare for every single disruption, but this practice allows for contingency plans and preparation for worst case scenarios.  However, as common sense as the method may seem, many businesses still have not adopted these practices and optimize their supply chains.

In a new Marsh white paper, the report states that “too many organizations lack complete visibility into their supply chains and do not understand the risks they face.”  Some companies may wonder why this statement may be important.  The easiest answer to point to is how globalized supply chains have become and the heavy disasters that severely impacted several supply chain last year including the Japan earthquake and the Thailand floods.  The report includes startling statistics such as the fact that less than half (about 40%) of businesses after the flooding in Thailand stated they would reevaluate their supply chain resiliency.

Big name brands that needed constant product flow were highly affected and the disasters showcased whether or not companies had any preparations.  For instance, Sony was not prepared for any disasters as they were heavily affected by the Thailand floods.  24% of their products and services sales fell after the flooding which they attributed to the disaster.  On the other hand, Seagate, the disk manufacturer, was also affected by the Thailand flooding but were able to predict their financial output and mitigate their risk with their diversified operations and broad supply chain.  They saw a strong performance this past quarter with a net income of $1.1 billion.  Risk management is an important part for optimizing any supply chain as these two examples have shown.

Source Consulting is committed to helping companies find ways to help mitigate areas of risk within their company by helping reduce shipping costs and empower businesses with innovative shipping technology.  We can help optimize your supply chain and help give the advice and tools your company needs for the risks ahead.  Whether it is through our company or through a careful self-evaluation, make risk management a priority rather than a passing thought.

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