As supply chain professionals continue to work through disruption, old ideas about how to practice effective supply chain risk management are still far too common.

In fact, the nonstop chaos of the pandemic era has reinforced past tendencies to react to one emergency after another. Companies then scramble to cope with allocations, leap into crisis mode in response to shortages or delays and overspend to quickly procure from alternative sources. Though understandable, this strategy is counterproductive and should not be considered a long-term solution when it comes to managing supply chain risk.  

As organizations build out more robust supply chain risk management programs for a post-pandemic world, it’s important to understand what to be aware of and what mistakes to avoid. Following are five mistakes companies make when it comes to supply chain risk management and how to remedy them.

Prioritizing spend over revenue in your risk mitigation strategy. When asked to name their most critical suppliers, many supply chain professionals will cite those that command the largest annual purchases. But in many cases, disruptions in supplies of lower-cost items like paint, connectors, packaging or labeling more seriously affect company revenues. The inability to secure these low-spend, single-sourced materials or components produced by a third- or fourth-tier supplier can disrupt entire supply chains across industries. 

In one real-life example, the absence of a 12-cent part (one of 20 components in a product) recently halted an assembly line for two weeks. Meanwhile, the inability to get a five-dollar chip has wreaked havoc on the automotive and high-tech industries. 

And it’s not just geopolitics, COVID-19 lockdowns or weather-related events that you need to think about. If the supplier of an inexpensive specialized cable that is essential to producing a top-earning product is acquired by a company that decides to spin off the cable business, that loss will disproportionately impact the OEM customer’s top line, particularly if an alternative source cannot be quickly found and scaled up. Yet managers are often blindsided by such disruptions because they have been focusing on large direct suppliers and missing the sole-source dependencies deep in their supply chains. 

Instead pay the most attention to suppliers whose loss or disruption would have the greatest impact on revenues, and direct your risk mitigation actions toward them.

Driving your supply chains without a good map. For more than 30 years, global corporate supply chains have been optimized to reduce labor costs and improve efficiency. This has been good for consumer prices and company margins, but it has allowed hidden weaknesses to develop in supply chains. When the 2011 earthquake, tsunami and nuclear disaster struck Fukushima, most multinational companies were shocked to be hit with disruptions that originated from lower-tier suppliers located in the affected area.  

But even after Fukushima, few companies heeded the wake-up call to develop multi-tier supply chain mapping capabilities. When COVID-19 hit, companies such as General Motors, Cisco, IBM, and Micron Technology, all of which had established comprehensive, multi-tier supplier mapping programs quickly, ascertained which parts and materials originated in Wuhan and Hubei and fast-tracked their responses. Those that did not had to act based on the limited information they had beyond their tier-one suppliers.  

For large OEMs that wish to reduce their supply dependency on China, a thorough supply chain map is essential. Without it, the OEM’s direct suppliers, contract manufacturers and product assemblers will likely remain dependent on Chinese-made materials, components and intermediate goods. On the other side of the coin, the visibility that mapping provides could allow a company to decouple from China without switching suppliers. According to data from Resilinc, a supply chain risk management platform, about 30% of Chinese supplier firms have manufacturing sites outside of China. So an OEM wanting to source from countries other than China could conceivably do so without the cost and time of qualifying a new supplier.   

Viewing supply chain risk management as an operational burden rather than a strategic lever. Supply chain management is dynamic and fast-changing. Shortages, demand spikes, supplier quality issues, budget constraints, delivery delays and other operational challenges demand so much time and attention that leaders often have no time to step back and assess their supply chain risks and opportunities proactively — or to invest the time and money needed to gain multi-tier visibility through mapping.  

Compensation incentives are usually tied to short-term goals around cost savings, inventory turns and time-to-market. And in the event of disruptions, many companies make the mistake of rewarding employees who play the hero and “save the day” — yet fail to account for raw material premiums or freight expedite costs. 

This sends the wrong message. One tool to begin remedying this situation is a post-event assessment with the participation of finance teams to assess the true costs of the “heroic” measures. Then compensation structures should be reoriented around resiliency metrics such as annual targets for mitigation actions for high-risk suppliers and critical supplies.  

Not holding one leader accountable for risk management and resiliency. While most large OEMs have a chief procurement officer (and often more than one, with responsibilities spread across company divisions), many supply chain organizations have insufficient clarity about who is responsible for risk management and mitigation, and what is expected of supply chain risk-management teams.  

Designating a single person to lead supply chain risk and resiliency is critical. This position must be filled by someone with strategic vision and the ability to influence C-suite leaders as well as their cross-functional counterparts. They must be able to balance personal diplomacy with a willingness to rock the boat when necessary. 

The most important role of this supply chain risk management leader is to bring together a cross-functional core team from all relevant departments to establish clear expectations about the services and value expected from the supply chain risk-management team and to collaborate effectively to deliver results. Best-in-class, mature supply chain risk-management leaders provide biannual or annual CEO and board-level reports. 

Taking shortcuts in supply chain resiliency. A supply chain resiliency program that is aligned with a company’s core strategies and focused on increasing ROI, rather than meeting operational objectives, typically takes three to five years to develop. Many corporate leaders lack the requisite patience and discipline required to make this journey. That’s understandable, but it’s also a formula for losing out on the long-term ROI that a truly effective supply chain resiliency program could deliver.  

A mature supply chain resiliency program includes real-time event monitoring; supply chain mapping down to part origin for single-sourced parts; sub-tier visibility into constrained materials or historically weak suppliers; and proactive risk-mitigation efforts for high-impact, high-vulnerability suppliers, sites and parts. It is guided by revenue impact assessments rather than annual cost/spend, managed by cross-functional core teams that collaborate regularly and generate risk insights that inform product design decisions.  

However, even after a company has reached a high level of maturity, there’s still work to be done to maintain and refine the program. Often, corporations with mature capabilities that have lost their edge experience declines in those capabilities. Consistent C-level support, as well as the participation of category managers and functional teams, require continuing education by the supply chain risk team lead. This can be particularly important with changes in C-level leadership. 

The pandemic has inflicted serious damage in the last two and a half years, but there may be a silver lining for companies smart enough to take advantage of the opportunity to develop a more resilient supply chain. These improvements can enhance customer relations, inform new product design, build brand value and generate quantifiable ROI. 

Bindiya Vakil is chief executive and co-founder of Resilinc.