Supply chain management refers to the management of the flow of the goods that encapsulates all the processes involved in transforming raw materials into finished products or services which an organisation offers. It includes planning and managing sourcing, procurement, conversion, logistics management, and many more functions.
One of the reasons organisations invest in implementing a robust and transparent supply chain is to boost their global competitive advantage. However, the globalisation of supply chains also brings many potential risks to quality, safety, business continuity, and reputation. These issues need to be addressed through strong risk management practices in the supply chain. Professionals with the relevant qualifications, such as a supply chain analytics certification, can help organisations implement preventive measures to mitigate the risks in their supply chain.
Risk management in the supply chain has become important as organisations are trying to increase their global reach. Logistics and operations management is very crucial at this juncture, especially while trying to enter new markets. It is also essential to consider and prepare for the wide range of financial, regulatory, and legal risks that organisations need to face because a single mistake can not only result in a monetary loss but also damage an organisation’s reputation.
What is supply chain risk management?
Supply chain management not only includes the safe transport of products to the customer but also a plethora of other components. It includes managing vendor relationships, building strong payment protocols, knowing the geographic challenges, and many more. It is necessary that all associated stakeholders in the supply chain undergo risk assessment, thus keeping risks under control to reduce vulnerability and ensure business continuity.
Supply chain risk management (SCRM) is the implementation of strategies to manage both routine and exceptional risks that can arise along the supply chain. It is the process of identifying, assessing, and mitigating the risks of an organisation's supply chain. By implementing global supply chain risk management strategies, organisations can operate more efficiently, reduce costs, and improve their customer service.
SCRM is essential in events like natural disasters and transport disruptions, where the strategies put in place can help organisations cope with these events successfully. The purpose of supply chain risk management is to prevent issues and provide loss mitigation if risk events do occur. Many of the supply chain management courses in India can provide professionals with the required knowledge to grow in the supply chain industry.
The need for supply chain risk management
Organisations, with a growing network of prospects and increased global dependencies, have a higher risk of supply chain disruptions occurring, risking a loss of revenue and customers. Irrespective of industry, every organisation is exposed to both internal and external risk factors from supply chain disruption. A few of the internal risk factors can be disruptions of internal operations, changes in management, lack of contingency planning, etc. External supply chain risks include risk events caused by an inability to predict or understand customer demand, lack of proper supplier risk management, natural disasters, etc.
Supply chain risk management can help organisations navigate these risks and properly manage the supply chain to achieve success. SCRM benefits the supply chain in the following ways:
Ensures business continuity
Implements supply chain visibility
Monitor regulatory/standards compliance
Manage suppliers to realise the value and reduce risk
Avoids losses by detecting risks early
Ability to respond to unexpected events
Safeguards the image of the organisation
Boosts and maintains customer satisfaction
4 steps you can take to manage the supply chain risks
Supply chain risk management (SCRM) is the process of creating a strategy and working to identify, assess, and mitigate the risks in the entire supply chain. With increasing linkages between global markets and the growing complexity of supply chains, the need for risk management is stronger than ever. A career in supply chain management would, thus, be filled with rewarding opportunities as it is an ever-expanding field.
Analyse the organisation’s supply chain and its various stakeholders
The first step is to understand the working of every stakeholder in the organisation’s supply chain and how each stakeholder is dependent on the other. A careful study of the risks associated with each stakeholder should be analysed to understand what type of risk, where, and when this risk can arise to disrupt supply chain activities. One also needs to understand the risk factors associated with the suppliers providing the services or raw materials. This analysis is another method of looking at the frequency and severity of a risk, which is central to the main risk management process.
Create an action plan
After the analysis of the organisation’s supply chain, the areas where action needs to be taken become clearer. Then, a proper action plan needs to be created for each situation. Upon documenting the plans, organisations must educate their employees and put into practice their plans to reduce risks.
One can use the globally recognized ‘PPRR’ risk management model as a supply chain risk management strategy to help with business continuity planning. This model involves the following:
Prevention: Take precautionary measures for supply chain risk mitigation.
Preparedness: Develop and implement a contingency plan in case of an emergency.
Response: Execute the contingency plan to reduce the impact of the disruptive event.
Recovery: Resume operations and get things running at normal capacity as quickly as possible.
Strengthen the supply chain by adopting technology
The more dependency between the stakeholders of the supply chain, the larger the risk involved. To reduce supply chain risks, the best suitable course of action is to lessen dependence on any one stakeholder. Diversify the stakeholder dependency so a disruption in one stakeholder would not have an extreme impact. For example, diversifying suppliers, and transport providers, maintaining stock at various warehouses, etc. Organisations also have the option of supply chain insurance to protect against disruption risks.
In addition, organisations must use technology to mitigate their supply chain risks. Technology enables real-time tracking, automatic notification, end-to-end visibility, data management, and many more functions to highlight emerging trends and problem areas. This information helps identify problems and makes it much easier to prevent or reduce their occurrence. Technology also helps effectively communicate in real-time with the various stakeholders in the supply chain.
Monitor
No system is perfect and needs to be continuously monitored to prevent setbacks. A monitoring system that will enable visibility of the entire chain and its process is essential to prevent risks from occurring in the supply chain. Monitoring is crucial because it enables fast response. Faster and quick response to an incident will lower the severity and its effect on the other stakeholders in the supply chain. All processes need to be monitored to be effective and streamlined if required to deliver the desired results.
