Supply Chain Risk: How to Identify and Manage Liability

In today's highly competitive marketplace, healthcare organizations and medical device manufacturers need to prioritize supply chain risk management to avoid costly disruption, non-compliance fines, cost volatility, and other incidents that can damage their brand and reputation. Supply chain risk evaluation helps identify any threats within the supply chain in order to limit and mitigate their impact on operations.

Identify Current Risks

Utilizing an audit of supply chain processes is the first step to identify areas with risk exposure, assessing all potential chain disruption scenarios right from sourcing to product delivery. Afterward, prioritize all the potential risks by the likelihood of actual occurrence and estimate each event's impact on operations and reputations. It is also essential to develop a sound mitigation contingency plan starting with the most likely scenario and highest impact risk.

Evaluate and Manage Environmental Risks

Managing environmental risks within a supply chain is now more critical than ever. The COVID-19 pandemic exposed gaps in global chains that caused unprecedented disruptions. A recent study reveals that almost 75 percent of 628 businesses surveyed faced massive supply chain disruptions due to the COVID-19 outbreak. In the same survey, 57 percent of respondents indicated they meet long lead times for orders from Chinese suppliers.

Evaluating environmental risks and developing a contingency plan will help enable a company to incorporate changes when faced with disruption risks. One key solution is to transition from a single source to a multi-source chain model with both local and international suppliers.

Assess a Supplier's Geography Risk 

In order to avoid unforeseen supply chain vulnerabilities and disruptions, it is necessary to ensure a geographical risk review is incorporated into the supplier selection process. Identify and document any risks by mapping out and assessing all major products' value chains and locations. Persistent monitoring of geographical risks helps identify the threats that can damage an organization.

Benefits and Risks of Local and Global Supply Chains

Global Supply Chain

Global supply chains offer several advantages to organizations. They enable access to goods that otherwise would not be available be able locally. Other benefits include lower costs, greater variety, higher volume, access to intentional market places, and much more. However, global supply chains are not free from risks such as cyber-attacks, political instability, economic instability, extreme weather events, environmental hazards, supply consistency.

Local Supply Chain

As the world businesses adjust to the new normal, local manufacturers and industrial companies are working hard to strengthen their supply chain. Local supply chains offer more flexibility, greater control, reduced transportation costs, and environmental benefits. However, they can also be prone to less efficiency with restricted economies of scale, lack of variety, higher prices, and lower volumes.

Routine Audit of Suppliers 

The frequency at which a company audits their suppliers will depend on the risk of the supplier to the product provided. In the medical device and life-sciences industry, high-risk suppliers should be audited annually. They may also be audited more frequently if poor potential for ongoing monitoring is detected. The second level risk category suppliers can be audited every two years or as often as need be. 

Evaluate Cybersecurity Risks

Cybersecurity in the supply chain should not be seen as an IT problem only. It impacts the entire supply chain processes from sourcing and vendor management to quality and transportation. After acknowledging that a breach is inevitable, lay down strategies to identify and mitigate risks and plan how to recover from a breach if one occurs. Use the following techniques to strengthen cybersecurity defenses:

• Establish compliance standards  Create compliance standards for all third-party vendors such as manufacturers, suppliers, and distributors. Defining user roles and implementing robust security controls to restrict access to your systems is also necessary.
• Perform vendor risk assessment  Before signing any contracts, perform a thorough vendor risk assessment. It may help to implement data guidelines that define who owns specific data and what they can do with it. Developing a unified disaster recovery plan and backup controls to safeguard your data backups is key.
• Train employees  Provide comprehensive training for all staff on cyber-security protocols. Software solutions can also enable greater visibility into a company's entire supply chain. 
• Leverage supply chain risk assessment software  Robust supply chain risk assessment software provides greater visibility into the entire supply chain structure. Leveraging such solutions help identify weak points in the supply chain and access data-backed insights on strengthening them. 

By evaluating the risks in their supply chain, organizations can improve efficiency and achieve substantial cost-reducing opportunities. However, supply chain management can be a complex and fragmented process in healthcare because medical products and services pass through multiple independent stakeholders.

Risk is an inevitable and integral part of any business operation. Identifying and managing perceived supply chain risks proactively will help an organization in the long run.