10/21/2019 | 3 MINUTE READ

Don’t Ignore the Long-Term Risks of Short-Term Solutions

Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

It’s crucial to know, understand and plan for the long-term risks and ramifications of any business decision as well as the ripple effect of any disruption.

Manufacturing is inundated with risk, especially as global corporate supply chains become deeper and more complex to manage. Issues can arise at a moment’s notice, and not all manufacturers may be equipped to handle unexpected roadblocks that come from solving short-term issues or responding to a crisis. More strategic and holistic risk awareness and management is especially important for production machine shops as threats can cause major impacts to a manufacturer’s viability and supply chain resilience, short-term solutions can have long-term negative consequences.

Unseen and poorly managed risk events slow—or in the worst cases, halt—production, directly impacting the bottom line and causing reputational damage that can result in financial losses in the long term. Additionally, as consumers live in a world of instant gratification, the speed of production is ever increasing, making the financial stakes even higher. It’s obviously important to have alert systems in place to quickly manage short-term or immediate risks, but in our global supply chain environments, it’s crucial to know, understand and plan for the long-term risks and ramifications of any business decision as well as the ripple effect of any disruption.

Take for example the crisis Ford faced in 2018 when one of its supplier facilities went up in flames, ceasing production at a facility that was a primary source of key parts for the F-150 line—the company’s most in-demand vehicle. Despite the incident happening in one location, it had a downstream impact nation-wide as the facility was the primary source for provided parts to plants across the country. With the F-150 as Ford’s biggest money maker, having one main supplier poses a large risk to the company’s bottom line and productivity. While a large manufacturer such as Ford was able to overcome the setback and even increase sales from the previous year, many smaller plants would not be as lucky in this type of situation.

Manufacturers must be able to identify and plan around the leading problems of long-tail risk in order to better manage their facilities and ensure top performance. This is even more true as risk can develop from a variety of angles, especially as companies look to become more global in today’s era of digitalization. The increased complexity that comes with global supplier bases makes the need for visibility truly critical for risk management, even though 100% transparency beyond Tier-One suppliers can be difficult. Embracing technology to support risk management is more important than ever. With the support of risk management technologies, manufacturers have the ability to better see and act on risks, be they financial, reputational, geopolitical, weather or nature related, cyber related or other. The number of threats to manufacturing will only increase as the world and technology continue to change, and the ability to holistically view and strategically manage risk will be a core competency.

Taking a reactive approach is no longer enough. The best way of avoiding risk is to implement a sound supply chain risk management strategy that allows manufacturers to secure viable supplier relationships, prevent supplier slowdowns and ensure the company is operating according to all government regulations. Through the implementation of advanced technology, such as artificial intelligence, organizations can assess large amounts of risk data from a variety of places such as news outlets and third-party data sources. With all the data they now have, manufacturers can put ongoing risk monitoring practices in place within their business that can alert employees of real-time risk happening all across the world. Once a foundation for risk monitoring is thoroughly set, manufacturers can begin the process of risk mitigation to help reduce the chance of negative risk, causing detrimental implications on their business and their customers. They can strategically use risk for competitive advantage.

With a growing demand for instant gratification and consumers’ desire for immediacy, production machine shops must actively work to find an equilibrium between efficiency, quality and supply chain reliability, while maintaining strategic risk management to ensure they can keep up with consumer need and maintain their operations in both the short and long-term, no matter what.

 

About the Author

Bill DeMartino

Bill DeMartino

Bill DeMartino is general manager, North America, of Riskmethods, working with companies of any size to help master supply risk and create reliable supply networks. Learn more at riskmethods.net.

 

Resources