Supply chain risk management for resilience in grocery manufacturing
By Wesley Niemann - Jul 25th, 16:11
Competitive. That is the one word that certainly describes the modern business environment best and a factor that drives many firms to expand their operations globally for cost-effectiveness.
Along with this expansion comes an array of issues that increase the complexity of supply chain networks and that subsequently make the supply chain more vulnerable to risk. These risks can cause severe disruptions to supply chain operations and negatively affect parties involved in the extended supply chain.
As a necessity of being successful under these circumstances, practitioners have become more interested in supply chain risk management (SCRM) for its tools and practices that can significantly mitigate the challenges brought about by supply chain risk, allowing their firms to better cope with the complex supply chain risks created by the modern business environment.
A recent study by supply chain management experts at the University of Pretoria investigated the SCRM processes of FMCG grocery manufacturers in South Africa. The study focused particularly on risk identification, risk assessment, risk mitigation and risk monitoring as different phases in the SCRM process.
The first and one of the most essential steps in the process involves the identification of potential risks in the extended supply chain and establishing the relationships that exist between external and internal risks. Even though this step is critical to the process, the study found that many of the participating firms did not have any formal risk identification tools in place, and took a mostly reactive approach to risk. However, it was found that the South African context had recurring labour risks which South African FMCG grocery manufacturers often identified not with formal tools, but simply from past experience.
Risk assessment helps firms make sense of risk and then prioritise risks based on likelihood, frequency and their impact on the supply chain. The study distinguished between two important categories under risk assessment, i.e. risk assessment scales and risk assessment tools.
Risk assessment scales identified in the study seek to prioritise risk based on its likelihood and impact. The risk assessment tools used were generally aimed at either assessing the external or the internal environment. Assessments on the external environment focused on supply chain partners such as suppliers or customers, whereas the assessments on the internal environment with focused more on the firm’s operations. Even though these risk assessment tools were noted, the majority of participants in the study didn’t seem to have formalised processes for these assessments.
In order to reduce the likelihood and/or impact of supply chain risks, South African FMCG grocery manufacturers employed various redundancy and flexibility strategies aimed at mitigating the risks they faced. Redundant strategies employed came mostly in the forms of safety stock, strategic stock and centralisation of inventories. Flexibility in the supply chains was achieved by making use of multiple sourcing strategies and flexible distribution. Regardless of the specific strategy employed, firms reported that cost and customer service were the main priorities in the selection of an appropriate strategy.
The final step in the SCRM process, risk monitoring, assesses how successful risk mitigation strategies were and how to correct any shortcomings of the particular strategy. This iterative process helped firms in the FMCG grocery manufacturing industry to develop new mitigation strategies to more effectively deal with risk going forward. Important monitoring tools mentioned by participants of the study included benchmarking, market analyses and frequent reviews of supplier sites. The frequency with which these tools were used depend predominantly on the type of risk and could be done on a daily, weekly, monthly, quarterly or annual basis.
The majority of the firms that took part in the study reported that the SCRM process helped their supply chains become more resilient to supply chain disruptions, allowing them to rapidly recover from adverse events and continue their operations at its normal or an improved state. The SCRM process could then be described as a capability contributing to supply chain resilience.
Following the SCRM process allows supply chain practitioners to effectively prioritise their risks and subsequently allocate sufficient resources to mitigate the impact of high impact, high likelihood risks whilst preventing overzealous resource allocation to lower impact, low likelihood risks. This results in a greater focus on cost-effectiveness for firms operating in the FMCG grocery manufacturing industry, where price competitiveness is of critical importance.
Ensuring that the SCRM process is implemented through a structured approach will allow managers to improve cooperation in risk mitigation strategies facilitated by a more comparable basis of discussion. Finally, of course, the effective and structured implementation of the SCRM process can go a long way in building more resilient supply chains for firms operating in the FMCG grocery manufacturing industry.
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