How Family Business Handles the Risk of a Supply Chain Crisis such as a Obstructed Suez Canal
Tuesday 23 March 2021, the 400m Megaship cargo ship (equivalent to the Empire State Building), The Ever Given, get stuck and blocked the Suez Canal for a week causing a global supply chain crisis.
The Suez Canal is a 120 mile long artificial waterway that separates the African continent from the Asian continent which is the busiest trade route in the world.
With an estimation 12% of total global trade passes through the Suez Canal as a logistics route.
Lloyd's List, said that this incident held at least US $ 400 million or around Rp. 5.7 trillion (assuming Rp. 14,000 / US $) per hour. This figure is obtained from the estimated value of goods passing through the Suez Canal every day.
According to BIMCO, the largest international shipping association whose represent the ship owners, at least hundreds of vessels have bottlenecked and have an impact on the shipping supply chain.
If you are a family business practitioner whose business in export - import of goods from the Continent of Europe, Africa, America and Asia, you will definitely experience the impact of this incident.
However, this loss can be anticipated with Supply Chain Risk Management.
What is Supply Chain Risk Management, how is it impacting the business, as well as anticipatory steps that can be taken by family business practitioners?
Supply Chain Risk Management
The supply chain includes all parts of the process of meeting customer demands and involves many moving components. Every process that is in production can affect business performance and success.
With so many stages and parties involved, disruption is prone to occur. These risks must be assessed, monitored and managed to avoid the disruption and ensure business performance and reputation are maintained.
Supply-chain risk management is part of the supply-chain management process, which identifies risks in a supply chain, assesses the likelihood and severity of risks that can occur, and takes strategic steps to avoid or control them.
An event that may be small and far from the center of production activities may have a significant impact on supply chain performance.
Apart from a blocked Suez canal, there are other examples of supply chain crises.
March 2000, massive lightning booms in the sky in New Mexico and causes a short circuit and a fire at the Phillips factory that produces chips for Ericson.
The automatic extinguishing system activates once it detects smoke so that the fire does not spread more widely.
However, the water spray caused the chip to become contaminated. Thousands of chips that were ready to be sent to Ericson were canceled because they were damaged.
The impact, a significant loss. Production stalled for several days. Products in process cannot be finished as finished goods.
Purchase orders from customers cannot be fulfilled.
The cut in the supply of chips resulted in the loss of Ericson, who only has a single supplier of chip components.
Unfortunately, the Phillips factory repair process took almost a year. Practically Ericson also stopped the production process for one year so that the losses were even greater.
Why is Supply Chain Risk Management Important?
1. Preventing Supply Chain Disruption
Disruption to the supply chain can bring operational activities to a halt. However, with Supply chain risk management, companies can prepare backup plans such as involving alternative suppliers, inventory safety stock or alternative facilities & equipment.
2. Quickly Respond to Unexpected Interference
Failing to deal with events or disruptions quickly can damage a business's reputation and make the situation much worse. Risk management can help businesses prepare for the worst so that, if unexpected disruptions come occur, business can respond quickly and prevent them to happend.
3. Maintain Business Reputation and Profits
Businesses that do not manage risk effectively throughout their supply chain will be vulnerable against reputation damage. This can lead to a decrease in profits as clients and customers will turn to more reputable competitors.
By prioritizing supply chain risk management, the Company can avoid reputation damage and the negative impacts that accompany it.
Steps that must be taken in implementing supply chain risk management
1. Risk Identification
To manage risks, it is necessary to know what hazards and risks are in the supply chain.
As family business practitioners, you can map-out the entire supply chain process chain. From upstream to downstream.
Then, brainstorm with the team on which processes can be a risk. Write a list of the risks in each process.
2. Risk Assessment
Assess how likely it is, how serious the consequences are, and what impact the risk will have on the business.
After you have a list of risks in each supply chain process.
Give a number 1-10 for how serious the impact is to the business and how likely the risk is.
After this has been totaled, then you will get priority risks that must be mitigated immediately.
3. Risk Mitigation:
From the previous risk assessment analysis, you can manage risk by streamlining the supply chain process, adding third party providers, or even changing the business strategy.
In essence, risk needs to be eliminated or managed.
This chapter includes planning and implementing control measures and putting in place action plans for potential scenarios - what to do in the event of a supply chain disruption.
Supply chain is a complex activity, involving various parties so that it is very vulnerable to risk.
Risks need to be managed and losses from unforeseen events need to be mitigated. Risk management, at least includes risk identification, risk control, and response to risk.
To manage business risk, you must have a data-driven analysis to monitor the productivity of business processes and supply chain. From this data, you can formulate agile strategies to pivot when in unexpected situations.
For the perfect integration of business operational data, inventory, sales, and business accounting and financial records, you can also use easy-to-use ERP software according to your business needs such as SAP B1.
By using this ERP software, your business can easily document all supply chain activities, identify & analyze risky processes and decrease risks.
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Created By: Team content TBI