Every day the success of businesses across New Zealand, not to mention the millions of New Zealanders they employ, rests largely upon having robust and efficient supply chains. Question is, how secure is yours?

 Healthy supply chains are the veins of healthy business. But when things break down, for any number of reasons, it’s remarkable how quickly a business can become operationally and financially crippled. In some cases the damage can be so severe it even proves terminal.

 For some business owners, the supply chain is relatively compact and easy to manage. But for others it can be a highly complex weave of local, interstate and even international suppliers, manufacturers and service providers – as well as internal suppliers operating within the business itself. Whilst each of these forms an integral link in the overall supply chain process, the flipside is it also makes each a potential risk should something go wrong. After all, accidents happen – whether due to human, technological, structural or environmental factors – and it only takes one weak link to render an entire chain broken.

 Of course laying in bed at night worrying about supply chain vulnerabilities won’t stop them from happening. What will make a significant difference is taking decisive action –implementing strategies to both minimise the chances of supply chain breaks occurring as well as reducing any impact on your operations if they do.

Understanding every link in the chain.

Perhaps unsurprisingly, the most critical step is simply to be aware of the scope of problem. In other words, making sure you have a solid understanding of the supply risks facing your business. It may take a little time to do this, but be assured it will be time very well spent. The process essentially involves conducting a risk assessment whereby you methodically identify the potential risks associated with each link in your supply chain. 

Ask yourself, how secure is each link (consider using a 1-10 rating system which can be adjusted up and down depending on the supplier’s performance)? What types of issues could potentially threaten them? What would a failure of that link mean to your broader operations? How could you mitigate the impact of such a failure? By asking these questions you’ll quickly be able to build a risk profile of your overall supply chain, identifying both strong and weak points. You can then develop effective contingencies to counter them.

To help you get started, below you’ll find some of the more common supply chains risks as identified by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF). You’ll also find some excellent strategies to effectively managing these risks.

Internal risks 

  • Lack of contingency plans — where a business fails to have procedures in place to deal with possible issues if and when they arise
  • General business risks — covers a range of issues including high turnover, loss of key staff, problems with staff, inadequate reporting structures, a lack of clear processes and management failures
  • Culture concerns — relates to how well you adapt to issues within the business and whether you’re open and honest about those issues
  • Manufacturing concerns — any kind of operations issue, but especially the breakdown of machinery
  • Failure to plan — similar to the first risk listed, but relates more to a failure to consider and plan for all of the risks that might affect your business.

External risks

  • Business concerns — how financially secure are your suppliers’ businesses? Are they being managed effectively?
  • Manufacturing plant concerns — do your suppliers have secure and safe manufacturing facilities that adhere to regulatory requirements?
  • Failure to deliver — what issues might prevent a supplier from getting a product to you, be it a physical disruption (like broken-down delivery vehicles) or a shortage of a certain product?
  • Environmental concerns — are there any factors that are subject to change, such as social, economic and governmental issues? (e.g. terrorism concerns, changes of government/policy, inflation, interest rate rises etc.) 

Management strategies

  • Solid partnerships — having strong partnerships with your suppliers adds a level of stability to the supply chain. Be selective about which businesses you enter into partnerships with, and make sure you do your homework
  • Positive company culture — consider investing in courses for your key staff on how to effectively and positively manage the teams and processes for which they are responsible. Reward their efforts appropriately to ensure they’re committed to continuing the good work that helps to keep your business running
  • Be flexible — without the ability to adapt and change as the market requires, your supply chain can quickly fall apart
  • Make use of technology, but don’t be too reliant on it — consider ways to continue managing your business’s supply chain should the technology ever fail
  • Backup suppliers — having preferred suppliers is an important part of any business, but it’s important to have others you could still trust to step in should something go wrong
  • Be regulatory aware — while your own internal processes adhere to regulations, what about the other companies in your supply chain?

 If you’d like expert assistance in identifying and managing your supply chain risk, please speak with your local Insurance Advisernet Member Broker.



General Advice Warning

The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.

Insurance Advisernet New Zealand , December 04 2018

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