Supply Chain Risk: The Facility Link

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When it comes to supply chain risk, most organizations initially begin by considering the overall risk that a supplier might introduce. But examining supply chain risk at the factory or distribution facility (DC) level can be just as important to understand specific risk factors and interdependencies. The supply chain faculty at the University of Tennessee published a study, Managing Risk in the Global Supply Chain, which suggests that 47% of companies do not have backup plans in place for a factory or DC shutdown.

Specifically, on the supply side of the supply chain risk equation, “If a natural disaster or major equipment failure shuts down a company facility (a factory or distribution-DC), about half of the firms surveyed [150] have a back-up plan that can be implemented fairly quickly.”

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However, this changes on the demand side in cases where “disaster strikes, about 7 in 10 companies have a documented response plan to salvage business with their customers either through product substitution, proactive communication or inventory.”

Spend Matters research suggests that most organizations that consider supply chain risk factors are still primarily focused on supplier financial stability, which is a foundational area for managing supply risk. In contrast, considering facility-specific risk requires the collection and management of significant additional information sets relative to considering more basic supplier profile, balance sheet and credit related information.

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