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Why a Preventive Approach is Critical in Supply Chain Management

February 20, 2023

Today’s global supply chains are complex, long, and intricately interconnected. While that complexity is responsible for successfully meeting customer expectations (in terms of delivery and product quality), it can also create a significant risk of disruption.

Traditional supply chain management has typically focused on reactive measures when faced with disruptions, such as securing alternative suppliers or expediting deliveries. However, a more proactive and preventative approach is essential to achieving supply chain resiliency.

What is a preventive approach?

A preventive approach to supply chain management focuses on the processes, procedures and systems used to anticipate and prevent potential supply chain disruptions. This approach requires a combination of strategic planning, risk management and proactive monitoring to enable organizations to quickly identify opportunities for improvement.

A preventive approach follows the wisdom of the 1-10-100 Rule, which states that a problem costing $1 to prevent will cost $10 to correct and $100 if you let it reach your final customer.

Think about it this way: when a defect makes it through production and reaches customers, those customers will likely return the product. That means you have lost the sale, have to cover the cost of returns, must trace the problem to its source and correct it, and will potentially lose that customer and others due to bad reviews. This hurts your brand’s reputation and can have a long-lasting impact on sales.

On the other hand, if you have invested in the tools and resources to prevent problems, it only takes minor adjustments to fix issues. In very little time, that investment will yield huge dividends.

One of the most commonly cited risk management models is the PPRR model. PPRR is a cyclical means of disaster risk management that stands for:

  • Prevention: Taking steps to eliminate risks
  • Preparedness: Having processes in place to handle disruptions that make it past the prevention stage 
  • Response: Taking action to rectify the incident 
  • Recovery: Following an efficient timeline to return to normal business operations

Prevention is the only piece of the PPRR model with standalone power. A prevented problem does not need to pass through the subsequent stages, but any problem that slips through the cracks needs Preparedness, Response, and Recovery. All four stages are important to have in place, but it is easy to see that Prevention is the foundation of the system — the rest is damage control.

7 potential risks to supply chains

The following seven risks are some of the most common areas of potential supply chain disruption:

1. Supply and demand risks

When your supply chain cannot source raw materials or components such as textiles and fabrics on time, production grinds to a halt resulting in decreased efficiency and increased costs. On the other hand, demand risks result from miscalculating a product’s demand. This risk can result in a lack of sales and overstocked inventory. It frequently stems from a lack of understanding of year-over-year consumer trends.

2. Fabrication risks

Fabrication risks include any manufacturing challenges or failures during production — from component and supplier quality issues to technical glitches and production delays. The right technology can grant you extreme levels of control and visibility into the real-time operations of your supply chain partners, letting you take a preventive approach to avoiding disruptions due to defects.

3. Regulatory risks

The burden of new tariffs, restrictions, and legal requirements placed on brands and retailers has been increasingly important in recent years. According to McKinsey, new tariffs have been enacted with little warning, causing input costs to skyrocket by 15 percent or more. Regulatory risks can have dramatic impacts on the profitability of product lines. 

Regulations may be out of your control, but staying current is not. Most of the risk stems from the overwhelming number of rules and the speed at which they change. Here, prevention means staying abreast of new requirements and implementing the necessary measures at scale to avoid non-compliance.  

4. Corrective action risks

Corrective action risks refer to any steps taken to rectify the problem. Corrective actions are necessary when a defect makes it through production and reaches the customer. If you cannot correct issues on time, those problems become more costly. Corrective actions must be taken swiftly and accurately, but they can also take time to research and implement correctly. The right processes to identify problems, create solutions and make changes is essential to preventing these disruptions. A robust digital quality management platform can provide you with the necessary capabilities to do so efficiently, allowing for a rapid response while centralizing communication for better collaboration.

5. Environmental risks

Climate change is increasingly causing production issues due to extreme weather conditions, drought, flooding and wildfires. In addition, the threat of pandemics has proven to be a major disruptor, further highlighting the need for contingency plans and measures such as remote work policies. You need to leverage data-driven models to anticipate potential disruptions and plan accordingly. A well-informed risk management strategy can help you identify and mitigate environmental risks before they become issues.

6. Internal and external business risks

Business risks stem from unanticipated changes within your own company or from the external environment, threatening the entire value chain. Internal business risks include project delays, data breaches, or company restructuring, while external business risks could include losing key suppliers and partners to new market entrants or competitors. The right technology can help you manage these risks by providing visibility into your operations, building stronger relationships with suppliers and customers, and helping you track changes in your industry. Additionally, having an early warning system to detect potential risks can help you respond quickly and avoid costly delays.

7. Control and planning risks

When assessments and forecasting fail to predict outcomes, production and sales suffer. To prevent this, you must be able to plan effectively, which requires careful analysis of long-term data trends and short-term trajectories. Quality control risks can arise when processes or products fail to meet expectations, resulting in delays and losses. Planning risks also occur when incorrect decisions are made due to insufficient data, assumptions, or foresight. To protect against these risks, companies should focus on gathering accurate data, monitoring performance metrics in real-time, and ensuring a thorough analysis of each risk.

How to take a preventive approach against risks

Taking full control of your supply chain means becoming proactive at handling problems. The process doesn’t happen overnight, though. Think of it as a journey towards prevention; the more focused your strategy, the faster you’ll achieve preventive capabilities.

Here are five steps to implement the preventive approach across your production network:

1. Map out your entire supply chain

Most companies find it difficult to map their supply chains accurately. Due to the inherent complexity of the different tiers of suppliers, the task can be daunting. There are suppliers you source from directly and those who supply your suppliers. And, in turn, who do their sub-suppliers source from? This way, a supply chain of 100 suppliers could be closer to 300 or more, a phenomenon known as hidden supply chains

“To improve its supply chain model, a company needs to first understand the various components of the supply chain and how they affect each other,” writes GEP. “Understanding the complete picture is essential to creating an efficient supply chain model.”

At its core, a digital supply chain management platform provides a dashboard for understanding your supply chain. Start by onboarding your suppliers to your network platform solution, using the opportunity to move beyond your Tier 1 suppliers to Tier 2 and beyond. In this way, you’ll be able to visually see how many factories and vendors you rely on and where they’re located around the globe. This is important for mitigating supply and demand risks.

2. Rank your suppliers by risk score

Once you understand where all your suppliers are and what dependencies each has, you need to see which ones pose the greatest risk to successful business operations.

Factories perform differently over time. Suppose one factory has historically been the source of a particular type of defect, a higher number of overall defects, or any other defect metric. You need to see that risk visually to know where to focus your improvement efforts.

Inspectorio Sight, our revolutionary quality management platform, helps you minimize fabrication risks through Factory Risk Prediction. This tool delivers a Risk Score from 1 to 100, with lower scores corresponding to lower risk. This score is color-coded on the dashboard display for an at-a-glance understanding of risk. To provide useful context, the tool also displays the relative change in Risk Score since the last assessment, the inspection history, and the variables used to calculate the score.

3. Set standard workflows at scale

Standardization is everything when your supply chain spans different product lines, countries, and languages. Art Isaacs, Chief Compliance Officer at InMocean Group, says, “if a defect [protocol] says the same thing in different languages, we’re all talking the same language. That makes for much better understanding across the board.”

This is one of the greatest benefits of a network quality and compliance platform. Rolling out standards no longer has to be a painstakingly slow process, onboarding each factory one by one in different regions. You can now create a standard once and implement it across your entire production network simultaneously, with different countries receiving it in their local languages.

Your technological solution should also centralize all communication to the platform, allowing you to eliminate fragmented communication channels like email, texts, and messaging applications. This will enable you to provide streamlined support as you roll out new standards at scale.

Combined with features offered by our compliance product Inspectorio Rise, the rapid rollout of standards lets you avoid regulatory risks by rapidly adapting to changes in compliance requirements.

4. Accelerate defect resolution

Product defects are poison to your brand. Left untreated, they can metastasize into full-blown crises that harm your reputation. Reputation is hard to earn and even harder to repair — something as simple as a stitching error can be deceptively destructive.

Once you can standardize your workflows, it’s time to standardize your defect resolution process. Because you cannot physically be present at every production line or manually respond to every problem in real-time, automation is key.

Take advantage of technology such as Inspectorio Sight’s automated CAPAs, which reduce corrective action risks by responding to product defects with the best action to rectify the problem. This means your supply chain management software can not only identify defects but also set interventions in motion. Review and follow up on all CAPAs from a clean, organized command center in your dashboard.

Zoom in on problems with features like Defect Comparison, which provides intelligent analysis of defects across factories, products, regions, inspection types, and more.

5. Use real-time analytics

Modern network platforms like Inspectorio Sight utilize machine learning and AI to analyze risk, mining all historical data for trends while incorporating incoming data in real-time. This happens continuously around the clock, no matter where you are.

That means you can gain actionable insights on risk from anywhere with an internet connection — simply check in with your autonomous risk monitoring software, understand the problem, and use that knowledge to prevent defects from occurring on your production lines.

Analytics empowers you to stay ahead of environmental risks, internal and external business risks, and control and planning risks by giving you real-time understanding of factory floor operations. When circumstances shift rapidly, and you need to make a game-time decision, you can do so based on objective data.

Keep risk in check and quality high with Inspectorio

Inspectorio helps brands, retailers, and their supply chain partners move the needle on quality, compliance, and more through data-driven collaboration and objective insights. With an industry-leading onboarding process and the ability to achieve substantial ROI quickly, our solution helps you implement a preventive approach across your entire supply chain.

Contact us to learn more about how our AI-powered analytics and 100% visibility solutions can help you prevent issues before they become problems.

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