5.12.24

How to Mitigate Supply Chain Risks

Supply Chain Risks – how to mitigate them

According to advisory company Software Advice, supply chain disruptions pushed 69% of all UK firms to source more locally in 2024. This illustrates how remaining agile and finding ways to increase supply-chain resilience are critical to ensure operational continuity.

Consumers have come to expect ample choice, instant shipping and ultrafast delivery, making a smooth supply chain critical. However, the fragile nature of supply chains can lead to sudden bottlenecks, delaying production or shipments and impacting an organisation’s ability to meet customer demand. These delays can disrupt cash flow and damage customer loyalty, as expectations for quick delivery go unmet. Fortunately, building a resilient supply chain enables small and medium-sized enterprises (SMEs) to recover more quickly from interruptions, maintain customer satisfaction and ensure operational continuity. This article discusses supply chain risks and outlines strategies to effectively mitigate them.

Understanding the Risks of Supply Chain Disruptions

A supply chain disruption is an unexpected interruption in the flow of goods and services, which can prevent businesses from maintaining normal operations and meeting customer demand. Numerous circumstances can disrupt supply chains, such as cyber-attacks, geopolitical tensions, transportation disruptions and natural disasters. Several other challenges specific to SMEs could leave them prone to interruptions, including:

• Supplier reliability—Smaller businesses often depend on a limited number of suppliers, making it challenging to secure critical supplies when third-party disruptions occur.
• Inventory management difficulties—SMEs may lack access to real-time data and predictive analytics to anticipate shifts in demand, which could result in under- or overstocking concerns.
• Transportation and visibility issues—SMEs may lack access to advanced tracking systems that larger firms use to enhance visibility in transit and negotiate competitive shipping rates.
• Resource constraints—Limited financial and human resources can make it difficult for smaller businesses to respond to disruptions; they may not be able to hire temporary staff, increase production or pivot to alternative suppliers.

These risks and challenges can hinder SMEs by disrupting production schedules, delaying shipments, increasing operational costs, impeding cash flow and damaging brand reputation.

Strategies to Eliminate Supply Chain Risk

SMEs should consider these tips to manage and mitigate supply chain risks:

• Diversify suppliers. SMEs should expand supplier pools to include those from multiple geographical locations to spread risk. Evaluating suppliers based on reliability and capacity to meet demand spikes is crucial.
• Strengthen supplier relationships. Regular check-ins and open communication channels are essential to develop transparency and trust. For example, sharing forecasts or potential order changes can help suppliers better prepare for shifts in demand.
• Manage inventory effectively. While holding too much stock can increase waste and storage costs, maintaining a small reserve of critical components is crucial in case of disruptions. SMEs can leverage inventory management software to optimise stock levels and track trends.
• Plan for contingencies. SMEs should have a contingency plan that includes alternative suppliers, emergency contacts and an emergency fund to cover costs such as expedited shipping or temporary staff. 
• Utilise technology and automation. SMEs should consider using technology solutions like tracking systems for real-time shipment updates, predictive analytics for demand trends and demand forecasting tools for anticipating shifts in customer needs. These tools can improve supply chain visibility for proactive adjustments to minimise disruptions.
• Obtain robust insurance. Contingent business interruption insurance offers financial protection for operational disruptions caused by covered losses among organisations’ suppliers and business partners. It is especially useful for smaller businesses that are heavily reliant on third parties for essential supplies and key business functions.

Implementing strategies to increase the resilience of their supply chains can help SMEs streamline processes, reduce costs and drive growth.

Contact us today for additional risk mitigation guidance and robust insurance solutions.

Information provided by Zywave and contributed by Harrison Law, (Cert CII) Head of Commercial & Private Clients, Cox Mahon Ltd.