In view of increasing demands, supply chain risk management (SCRM) is becoming increasingly important for a rising number of companies. The crucial question for logistics decision-makers is how they can secure their supply chain against risks. We spoke with Tobias Ruscheweyh, Head of Branch at Hermes International, a division of Hermes Germany, about measures and emergency mechanisms for a resilient supply chain.
At the end of 2019, the 11th Hermes Barometer on “Risk Prevention and Supply Reliability within the Supply Chain” concluded that only four out of ten companies operate a holistic SC-risk management – despite the increasing risk situation. A few months later, the extent of the corona pandemic astonished the vast majority of companies.
Mr. Ruscheweyh, the pandemic has in some cases led to massive SC disruptions. Which effects were particularly significant?
The lockdown and the associated closures of production facilities primarily led to capacity deficits with regard to the availability of goods. After the successive opening of sites, on the other hand, there were tangible bottlenecks in loading and transportation. In this case, however, the effects did not only worry individual companies. Entire industries were affected – every company was concerned about the availability of transport capacities. Despite the difficult circumstances, together with our customers we succeeded in satisfying the transportation demands..
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Have you noticed a fundamental change in demand, e.g. for support in SC risk prevention? And if so, how do you respond?
Due to the renewed escalation of the pandemic situation and the resulting restrictions, our customers’ focus is clearly on the smooth handling of their day-to-day business and ensuring the timely delivery of their goods.
Nevertheless we support our customers in the area of SC risk prevention. Our risk management tool is already active, so that we can currently monitor all relevant traffic junctions worldwide and inform our customers about disturbances and potential dangers at an early stage.
The application is constantly being optimized: In the coming development phase, the aim is to analyze the probability of incidents and hazards occurring and to develop appropriate solutions.These measures are to be managed with the support of an action planner. Thus, in the event of an emergency, a pre-configured process is automatically started. Initially, this will involve specifically controlled information and notification processes, so that companies can react as quickly as possible.
Being able to react quickly requires emergency plans. What kind of plans do you think companies should have in place? What can be appropriate measures?
As a rule, logistics service providers have options or alternatives at their disposal to ensure that delivery bottlenecks can be compensated. Companies should therefore ask their service providers about the options available in case of an emergency.
The first step in developing a supply chain risk management system is basically the professionalization of so-called trouble shooting. This should be optimized step by step and involves the realization of a completely transparent supply chain, an analysis of potential risks as well as the identification of disruptive factors and the development of measures or solutions to eliminate them. Furthermore, the entire organization must be involved and responsibilities must be clearly defined.
In principle, global supply chains can be disrupted at any time. What is your advice for companies that want to secure their supply chain against risks in the long term? What steps should logistics decision-makers take on the way to a resilient supply chain?
As already indicated, full supply chain visibility, agility, flexibility and the development of solutionsare important aspects in order to be able to react to disruptions. The company’s own organization and the selection of service providers should also be successively aligned to this.
The main goal of procurement is to keep quality and costs at a profitable level. In order to avoid delivery interruptions due to long transport routes, sourcing or the selection of suitable suppliers and production sites should include local alternatives. In the future, it will be a competitive advantage to increasingly include geographically closer markets into the planning process in order to ensure the delivery capability even in times of global crisis.
In addition, it can be helpful to include a risk factor in logistics costs or to plan reserves in order to be better secured for coming crises.
Last but not least, the constant digitization of processes is another important factor on the way to a resilient supply chain. The pandemic was and is also a wake-up call to seriously address digitization requirements and to put the associated processes and “old habits” to the test.
In this context, how important will SC risk management be in the future?
There is no general answer to this question. Depending on the industry, the size of the company and the depth of production, procurement and services, SC risk management will develop differently.
We assume that companies will generally deal with the topic more intensively. At the same time, supply chain risk management is not a new topic: it is already anchored in ISO 9001. The practical and actual implementation, however, is quite different: In large companies, risk management is mostly established – or at least similar frameworks exist. In smaller or medium-sized companies, however, we often observethat corresponding frameworks have not yet been set up, or not completely. Here it makes sense to firstly identify the risks at the operational level and then to introduce suitable security measures.
However, based on recent experience, all companies should generally question their existing processes and procedures and examine them for optimization potential.