How to manage supply chain risk

March 15, 2023
By Justin Robarge | Director of Trade Compliance

Risk has always been present in supply chains. But tariffs, a pandemic, and subsequent recovery have brought far more attention to the ways things can go astray. The question now is the same as it always was, but has taken on new importance:

How can we prepare for the risks that are inherent in a supply chain?

Common options

Standardization: Leverage the easier availability of standardized parts, especially in the design of finished goods. This helps expand options or improve alternate sources of supply.
Diversification: Basically, you use multiple suppliers for a single product. This means if one supplier experiences a disruption, you can turn to another supplier. Combining sourcing in diverse regions further mitigates risk from regional or geographic challenges.
Supplier Evaluation: Before you even do business, you evaluate potential suppliers based on their financial stability, quality, delivery performance, process controls, etc.
Contract Management: The idea here is to create comprehensive contracts with suppliers that include provisions for handling disruptions and clear expectations between organizations.
Risk Assessment and Analysis: Here the work is ongoing. You regularly review and analyze potential risks in the supply chain and develop contingency plans as needed. This process should easily adapt to new risk events.
Supply Chain Visibility: Technology can monitor the movement of goods through the supply chain in real-time. This means potential disruptions can be detected and addressed quickly.
Collaboration: Working closely with partners in the supply chain, you can share information and resources to identify and address potential risks together.

How does Fastenal navigate global freight challenges?

We have a diversified strategy to move cargo globally, balancing out low costs from carrier direct contracts with the flexibility to expedite cargo on the spot market to avoid bottlenecks and congestion issues.

Our prevailing focus has been on getting goods delivered on time to avoid costly stock-outs and to minimize the need for air freight.

In 2021, Fastenal shipped almost 8,000 containers to North America from 46 different foreign ports.

How does Fastenal handle risks?

Let’s look specifically at what is done to manage political and regulatory supply chain risk. This will be inclusive of sanctions, trade wars, and evolving regulatory regimes.

To start, we’ve invested heavily in strong trade compliance and commodity intelligence teams. These teams are designed to provide forward-looking insight into specific governmental policy changes and subsequent repercussions that will propagate through the industrial landscape.

This focus on correlation, causality, and current events gives Fastenal a strategic advantage in managing both the challenges – and opportunities – that may arise. We are also investing in trade automation tools. For example, advanced denied party screening software allows us to quickly adapt to evolving sanctions.

How does Fastenal expect to offset future and unforeseen supply chain risks?

We’ve aggressively worked to diversify our global supply chain base across a range of countries, regions, and continents. This helps mitigate the potential risk that may occur from any given event. Also, a large percentage of our core offering is multi-sourced to provide further redundancy.

Our supplier onboarding and auditing process is designed to safeguard our supply chain by identifying potential risks, such as forced labor concerns, well in advance so we can avoid and anticipate challenges by only partnering with best-in-class suppliers.

Factors in Fastenal's favor

Local subject matter experts
In-house customs brokerage
Commodity intelligence – tracking future risk
Captive trucking fleet
Decentralized decision making
Global, multi-sourced supply chain
Local, point-of-use support and inventory

What specific supply chain risks should we anticipate in 2023?

Obviously, it’s difficult to predict specific supply chain risks, but everyone should keep an eye on these.

Inflation: Still high at the PPI/CPI level, the path of inflation will be on everyone’s watch list for the start of the year.
Political and economic instability: Changes in government policies or economic conditions need to remain on the radar.
Natural disasters: From hurricanes to blizzards, disruptions will happen. Transportation networks need to be ready to flex and adapt.
Uncertain demand: Sudden shifts in consumer demand can strain supply chain capacity
- Example: Trying to find masks in the early part of the pandemic.
Freight congestion: The situation has improved over the last year, but supply/demand imbalances continue to drive uncertainty in the market as reduced sailings limit shipment options.
COVID: It has been three years now since this first become a common word, but the impact is still not fully behind us, and future challenges could materialize in unpredictable ways.

Stay in the know

The stability and efficiency of a supply chain can ride on its ability to adapt. By anticipating and planning for potential risks, you can be better prepared to manage disruptions and minimize their impact.

A great resource to stay engaged as the year develops is our Global Market Update. In each issue, we break down what Fastenal is seeing in the space. We make this information available for free because we want our partners to know what we see coming, and hopefully prompt a collaborative discussion on how we can partner together to mitigate risk and strengthen our collective supply chain.