FST Soapbox

How to Mitigate Risks and Issues in Your Supply Chain

By Timothy Lozier
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October 16, 2018


• Categories: Food Manufacturing, Foodservice & Retail, FST Soapbox, RC - Food Safety Management System

As business becomes more global, effective and efficient, supply chain management is more vital than ever. Even if you’ve optimized your supply chain, uncertainty can cause issues when sourcing raw materials, goods and services, which could ultimately impact on your business, customers, revenue and reputation.

Fortunately, forward-looking risk management can help you understand potential problems in the supply chain and allow you to create contingency plans or take mitigating actions. Supplier risk management will let you ensure quality at every stage, help you prepare for potential issues, and deliver goods and services to the quality and deadlines your customers expect.

An Overview of the Supply Chain

The supply chain is the process through which you source raw materials, goods, services and other key functions from your suppliers. It has multiple facets:

• Identify the right suppliers and vendors.
• Negotiate prices, terms and conditions.
• Place orders with suppliers.
• Arrange for transport of goods and services to your business or to other manufacturers.
• Make payments to suppliers.
• Receive products and services into your business for onward provision to end customers.

If you want to avoid problems and maximize quality throughout the supply chain, you will need to explore each of these areas.

Key Risks to Effective Supply Chain Management

Here are the main risks on the supplier side, and how to manage potential issues.

Poor Quality Supplier Challenges

Risks with poor quality suppliers include:

• Goods, services and raw materials that do not meet your requirements.
• Delays in sending out your orders.
• Unreasonable demands made to your business.
• Hidden, detrimental terms and conditions.
• Damaged vendor relationships.

You can mitigate these risks through:

• Getting recommendations from other organizations that are sourcing similar items or services.
• Insisting on samples of the items you are planning to purchase.
• Reading reviews of suppliers and feedback from other customers.
• Ensuring you have robust contracts in place that clearly define the relationship.
• Employing a vendor manager who can ensure that relationships and negotiations run smoothly.

Unexpected Prices or Supply Challenges

Risks with pricing and supply include:

• Volatile pricing and potential overcharging.
• Suppliers not being able to source and provide what you have ordered.

You can mitigate these risks through:

• Locking in guaranteed pricing for specific areas and predefined lengths of time.
• Auditing of invoicing and costs versus agreements and contracts.
• Getting backup suppliers in place if your original supplier has a supply issue.
• Guaranteeing with the supplier that they will hold a certain amount of inventory for your specific needs.
• Insisting on regular reports of stock levels that you can draw down from.

Cultural, Environmental and Economic Challenges

Risks with culture, environment and the economy include:

• Language and cultural barriers with suppliers leading to misunderstanding.
• Local laws that impact on a supplier’s ability to meet your needs.
• Environmental factors like natural disasters
• Unstable political movements.
• Societal unrest and conflict.

You can mitigate these risks through:

• Getting backup suppliers in place if your original supplier has a supply issue.
• Using local expertise to understand and deal with any potential legal or political issues.
• Creating a contingency plan in the event of a natural disaster or economic issues.
• Using a relationship manager who can understand and deal with differences in language and culture.

Transportation and Distribution Challenges

Risks with transportation and distribution include:

• Inefficient logistics and distribution, leading to delays or loss.
• Unexpected costs of transportation, import and export, including tariffs and customs.

You can mitigate these risks through:

• Getting backup distributors in place if your original distributor has an issue.
• Reading reviews of distributors and feedback from other customers.
• Ensuring you have robust contracts in place that clearly define the relationship.
• Understanding potential costs throughout the supply chain.
• Creating a contingency plan in the event of supplier issues.

Examples of Supply Chain Risks and Issues in the Food Industry

Let’s dig into some potential risks to food supply chains, and how you might mitigate them.

Unusual Weather Patterns Lead to Smaller Harvests and Lower Yields
Food manufacturers rely on a steady supply of raw materials to make the products consumers eat every day. However, weather and climate can be anything other than predictable, and have several associated risks. Potential mitigation plans include:

• Identifying early climate trends that could impact a region and seeking out alternative sources.
• Having backup contracts with other suppliers if the crops from one region fail to meet appropriate yields.
• Developing alternative products that use fewer of a particular type of raw material or ingredient.
• Stockpiling vital ingredients in secure, long-term storage.

Tariffs Impact Import and Export Prices
Political uncertainty can result in increased customs tariffs to trade in certain goods. Potential mitigation plans include:

• Importing or exporting a surplus of goods before the tariffs come into effect.
• Seeking out alternative routes for food supply chains that do not go through impacted countries.
• Diversifying into food production that’s not impacted by specific tariffs.
• Moving part of manufacturing to regions not affected by tariffs.

Unexpected Production Issues Impact Food Safety
Food safety is critical to consumer confidence and a food manufacturer’s reputation. Despite stringent quality in the ingredient and manufacturing process, the global food supply chain can sometimes introduce contamination or other risks. Potential mitigation plans include:

• Clear, objective, verified, regular testing of all raw ingredients, independent of origin, type or destination.
• Labeling, batch numbers and other identifiers so all goods can be tracked through the supply chain to allow for easy identification of contaminant sources.
• st recall process so any products that are in stores can be easily removed and returned for testing.
• Exceeding FDA regulations and guidelines for safe food manufacturing.

When you’re managing risk in the supply chain, it is vital to capture all potential issues and prioritize them in terms of likelihood, impact and any other variables that are critical to your business. You can then get risk mitigation plans in place, and ensure your stakeholders and cross-functional teams have the resources they need to resolve your supply chain risks.