Supply chain monitoring for proactive supplier risk management
Given that resilience denotes the capacity to effectively rebound from disruptions, obtaining insight into all the interconnections and processes of the supply chain becomes paramount. In earlier discussions, we have delved into the fundamental data foundations that lay the groundwork for establishing transparency and facilitating informed choices. Moreover, we have explored practical applications for a supply chain control tower, while also examining pivotal focal points such as cybersecurity and sustainability in fortifying the robustness of supply chain operations.
Now, a pivotal query arises: how can we actively preclude and manage risks within the supply chain? Let’s navigate the realm of supply chain monitoring as a means to identify risks and anticipate potential destabilizing factors. As we continue our exploration of a modular framework for fostering resilience, our current focus is two-fold:
- Articulating the interrelation between monitoring and resilience, and how this interplay bolsters competitiveness.
- Engaging in a discourse regarding the spectrum of risks that warrant monitoring across the extended supply chain.
Within this context, we will also propose a forward-looking strategy for proactive risk management. This approach harnesses contemporary tools designed to swiftly pinpoint, assess, and effectively control supply chain risks.
Integrating resilience into supply chain monitoring
What fuels the growth and success of manufacturing companies? At its core, the solution hinges on achieving supply chain excellence. The ability to provide precise products promptly, in optimal quantities, while minimizing returns and waste, directly contributes to the contentment of stakeholders and shareholders alike. Nevertheless, the intricate web of interconnected processes, spanning from demand projection to last-mile delivery, is susceptible to deviations.
The landscape is riddled with challenges stemming from geopolitical and economic fluctuations, heightening the imperative of strategic planning. In this installment of our series, which predominantly approaches supply chain monitoring through the lens of risk assessment and mitigation, the primary goal is to emphasize the significance of extending visibility beyond the primary Tier 1 suppliers.
💡According to The Cost-Plus World of Supply Chains report, 63% of supply chain and procurement leaders expect significant disruptions in 2023.
Both external and internal factors carry the potential to trigger shipment delays, supply shortages, and the disruption of vital operations. As a result, this chain reaction can inflict financial losses and tarnish the reputation of a business. This underscores the crucial role of risk management.
In this context, being well-prepared for and conducting precise evaluations of risks becomes pivotal. These actions lay the foundation for crafting and customizing strategies that mitigate or, where feasible, forestall disruptions to the seamless management of the supply chain. This is precisely where the concept of continuous monitoring comes into play.
What is supply chain monitoring?
Supply chain monitoring involves a structured and continuous process of overseeing the flow of finances, information, and materials. This practice offers comprehensive visibility into all the dynamic components that collectively shape the end-to-end supply chain. In essence, monitoring collects data and facilitates its analysis for the following objectives:
- Performance assessment: Evaluating how well key performance indicators (KPIs) are being met.
- Informed decision-making: Ensuring the transparency and clarity necessary to make well-informed choices.
- Risk and vulnerability identification: Pinpointing weaknesses and potential risks that impact overall performance.
- Deviation tracking: Tracing any deviations that could potentially lead to a decline in quality or non-compliance with standards.
- Historical demand insights: Offering historical data on demand patterns, which enhances the accuracy of forecasting.
- Regulatory and ESG compliance: Meeting regulatory and Environmental, Social, and Governance (ESG) requirements.
- Current state analysis: Scrutinizing present conditions and metrics to uncover areas primed for enhancement.
Functionally, when coupled with alerting algorithms, monitoring acts as an early-warning system, furnishing supply chain managers with intelligence to take timely actions.
Why is supply chain monitoring essential?
Supply chain monitoring and the insights it offers empower manufacturing companies to adopt a proactive stance rather than a reactive one. Through consistent monitoring, a foundation is established for acquiring intelligence that extends beyond isolated issues, enabling a thorough evaluation of decisions relating to:
- Demand planning
- Inventory management
- Logistics
- Financial planning
- Supplier engagement and diversification, and more
Although immediate actions aid in identifying tactical gaps and seizing opportunities to address immediate challenges, they fail to cultivate resilience. Moreover, they can strain resources, plunging operations into a constant state of firefighting.
In the subsequent discussion, we will delve into harnessing technology to generate actionable intelligence. This approach not only trims redundancies but also curtails associated costs and errors, fostering operational efficiency.
Proactive supply chain monitoring through value-aligned mapping
The escalating intricacies of supply chains have a direct impact on the attainability of sustainable competitive advantages. A recent 2023 survey focusing on risks and challenges underscored that deficient data and a lack of transparency act as stumbling blocks in effectively managing supply chain risks. The crux lies in comprehending and contextualizing the data; this proficiency is pivotal for identifying, evaluating, and responding to events—be they ripe opportunities or risks to steer clear of.
Amplifying visibility across the entire supply chain, spanning from the acquisition of raw materials to intermediary and finished goods, carries twin benefits: heightened awareness of risks and shortages, as well as the revelation of bottlenecks or the necessity to identify alternative input sources. To erect resilient chains, manufacturers must blend financial, logistics, and industrial components and transition from process automation to decision automation.
This is where continuous and digitized monitoring becomes a catalyst for efficiency in the procurement process. It serves as a bridge, linking internal teams, suppliers, and partners, while also serving as a bedrock for innovation. Now, let’s delve into the actionable steps manufacturers ought to embark upon:
- Expand chain monitoring beyond Tier 1 suppliers: Develop standardized integration processes and adapters for swift onboarding of suppliers with diverse supply chain systems. Formulate procedures for gathering data from multiple suppliers at different locations.
- Prioritize AI-driven demand planning and end-to-end visibility: Embrace real-time data analytics to heighten the precision of predictions and forecasts concerning demand volatility. Stream these insights from your suppliers to your central systems or control tower. Utilize AI for optimizing inventory allocation and order fulfillment, including “allocation to promise” strategies.
- Enforce routine control with AI/ML oversight: Employ AI/ML techniques to fuel automation in routine processes and checks, such as credit assessments for supplier onboarding. Allocate time for “what-if” scenario analyses and concentrate on intelligently segmenting suppliers, extending beyond the conventional Tier 1 and Tier 2 categories.
- Automate and streamline laborious tasks: Invest in automation to streamline manual tasks, including Global Trade documentation, compliance with Free Trade Agreements (FTAs), trade tax calculations, reconciliations, settlements, and reporting as suppliers from new locations join. Consider integrating generative AI for contractual and compliance management across diverse locations, thus optimizing order management.
- Implement intelligent supplier segmentation and risk analysis: Grounded in monitored data, heighten the visibility of supplier risks and categorize suppliers using a blend of parameters. In addition to traditional supplier KPIs—like in-full delivery, on-time delivery, DIFOT (delivery in full and on time), and rejection percentage—also monitor their influence on final assembly and expenditure.
Effective supply chain monitoring hinges on robust data acquisition, which can be sourced from an array of outlets and repurposed for diverse objectives. While this article has underscored the emphasis on supply chain monitoring for risk assessment, the same data wellspring furnishes insights into performance. Such awareness is indispensable for sustainable chain management, permitting the optimization of lead times, inventory levels, cost efficiency, and more.
Risks to continuously monitor in the extended chain
Internal risks are within manufacturers’ control. Advancements in technology, particularly Artificial Intelligence (AI), Machine Learning (ML), and the Industrial Internet of Things (IIoT), have revolutionized our perception of manufacturing processes, logistics, and overarching supply chain models. By integrating monitoring practices, manufacturers can usher in digitized approaches that encompass tasks like loss prevention, ultimately curbing expenses and mitigating the hazards of delays, breakdowns, and glitches.
However, the complexity escalates when external factors cast their influence on the production of end products, casting a detrimental shadow on performance.
The action plan commences with the standardization of supplier onboarding and collaboration, as bolstering resilience necessitates seamless traceability and accountability across supply chains. Let’s now delve into the most impactful risk categories stemming from suppliers beyond the immediate base.
Monitoring risks for suppliers beyond tier 1
To ensure both immediate operational efficiency and long-term strategic excellence, manufacturers should establish collaborative partnerships with suppliers, intermediaries, and logistics collaborators. A key facet of this collaboration involves conducting automated, routine assessments of critical risk factors, encompassing both compliance and operational risks. It’s important to note that achieving visibility should be a concerted endeavor throughout the entire supply chain, both downstream and upstream. This is crucial due to the fact that a significant portion of supply chain disruptions tend to originate outside the immediate supply base.
Referencing Table 1, a comprehensive list of risk categories demands continuous monitoring. These categories exert primary impacts on distinct business objectives:
| Category | Impact |
| Financial | Revenue, profitability, liquidity of assets |
| Operational | Infrastructure, capacity, inventory, production planning |
| Cyber | Operations, IT/OT infrastructure, competitiveness, reputation |
| Geopolitical | Flow of goods, transportation, raw materials supply |
| ESG | Compliance to regulations, market share, reputation |
Table 1: Risks to monitor and address in extended supply chains of partners and suppliers
Ideally, insights derived from monitored data should be aggregated onto a comprehensive dashboard, where automated alerts are triggered based on critical business signals. This approach empowers responsible teams to promptly evaluate risks and devise mitigation strategies in their nascent stages.
Robust supply chain monitoring for real-time responsiveness
In the pursuit of risk management and the cultivation of resilience, the ability to swiftly identify and address emerging issues is paramount. Yet, the realm of potential systemic supply chain challenges is becoming progressively intricate and notably less predictable. Striking the right equilibrium between just-in-time and just-in-case inventory remains an ongoing conundrum. Similarly, determining the optimal course between nearshoring, supplier diversification, and the feasibility of continuous-flow versus batch manufacturing raises strategic questions.
The supply chain strategy doesn’t yield to a one-size-fits-all approach. Geopolitical uncertainties, economic fluctuations, and capricious demand patterns necessitate the adoption of a flexible, hybrid methodology. It’s crucial to grasp that, as the adage goes, the chain’s strength hinges on the resilience of its weakest link. While internal risks are controllable by manufacturing companies, they are equally influenced by external variables, and the interplay of these factors impacts both profitability and reputation.
Hence, the essence of supply chain monitoring and analytics emerges as a pivotal catalyst to:
- Detect and resolve emerging issues: Utilizing control towers or analytics platforms to swiftly identify and mitigate emerging challenges.
- Model and prepare contingency plans: Leveraging digital twins to simulate and prepare for plausible threats.
- Targeted problem solving: Crafting bespoke solutions tailored to specific challenges, such as optimizing inventory allocation, to drive cost efficiency and meet customer demands.
As supply chains attain unparalleled complexity, the array of challenges within the business landscape expands exponentially. Achieving this objective mandates harmonious and seamless performance across all nodes and underlying processes. Let’s engage in a conversation to explore how advanced technologies can streamline intricacies, thereby liberating focus for higher-level objectives and business advancement.
