Supply chain mapping (SCM) is collecting, storing and making available for reporting purposes information that relates to the production of a good or service in order to provide visibility, find areas for improvement or efficiency, reduce the chances of disruption and stay competitive. As international trade becomes increasingly efficient and companies continue to expand their networks, the need to establish and maintain a detailed understanding of your supply is more crucial than ever.
Not only is it important for the purposes of compliance and regulation, but it also provides greater flexibility when it comes to monitoring threats and avoiding possible disruption among suppliers.
This article examines the major risks and solutions to mitigate those risks, as well as the important role that data plays.
Supply Chain Mapping: Recognize the Risks
The more expansive supply chains become, the more opportunities there are for these intricate and time-sensitive networks to become disrupted in some way.
According to this article by Allianz Risk Barometer 2020, business interruptions that are most feared include:
Additionally, the same article lists the following as the most frequent causes of insurance claims regarding business interruption:
To make matters even more complicated, and interesting, mapping supply chains goes beyond merely considering the disruption risks posed by your suppliers – you must also bear in mind who your suppliers’ suppliers might be! The diagrams below represent how supply chain is usually thought to be much simpler than it actually is, and subsequently, how complex it can be.
Simple ‘supply chain’:
Reality of a complex supply chain:
Supply Chain Mapping: Identify Solutions
To put this into perspective, imagine if you are a manufacturer reliant on one part that’s only made by one supplier worldwide. Additionally, imagine you need a product that consists of different components, but your supplier’s suppliers are the ones who are disrupted, meaning the supply chain breaks down.
Another scenario could be that the cost of various components increases because of a supplier further down the supply chain, who is near declaring bankruptcy. This has the chance to be very disruptive and might not be immediately apparent.
Taking these potential supply chain map disruption examples into consideration, it is evident that it is not enough to merely be aware of a small percentage of your suppliers. Upon building the framework for your supply chain mapping, you need to also take into consideration as many different potential risks as possible, however unlikely or rare they may seem.
For instance, if your supplier’s factory was destroyed by an earthquake, which products would be impacted? Which stakeholders need to be involved in creating a Plan B? Are there any other suppliers you can turn to in such or similar situation? Do you have a regular contact with them?
The map below provides a visualization of what a supply chain mapping actually ‘looks’ like, that is, it presents global incidents, such as fires, floods, earthquakes, etc. which have and could affect the supply chain.
Supply Chain Mapping: Creating a Plan B
In order to create effective and successful supply chain maps, a few guidelines should be taken into consideration:
- Ensure that you have accurate data on all your suppliers
- Audit, from both a cost and revenue standpoint, which suppliers you are most dependent on
- Analyse which locations are most likely to be impacted by unforeseeable circumstances relevant to the business. Ensure to cover all perspectives: yours, and that of your suppliers.
- Consider transportation links between suppliers (air, rail, roads, etc.) and evaluate which are most vulnerable to potential disruptions
- Determine measures that can be put in place to ensure various stakeholders become aware of any potential supply chain disruptions, including but not limited to bankruptcies, natural disasters and/or ‘man-made’ issues such as strikes, or even conflict
All these examples rely on having good data as the foundation. To learn more about how HICX provides this, check our other content on the importance of having good data below.
Article updated March 2021