Mar 29, 2023

Overview on Supply Chain Risk Management

  • By John Smith,

Today’s world witnesses disruption quite often, and the supply chain is not exempt from this. The numerous steps from the inception of a product to its delivery complicate the process and are prone to risks.

That is where Supply Chain Risk Management or SCRM comes in. In an effort to control the damage incurred, SCRM assesses these risks to ensure minimal negative impact.

But how do we define supply chain risk management? Moreover, how does one manage these supply chain risks within such an extensive process?

Read along to find out.

What is Supply Chain Risk Management?

Supply chain risk management, or SCRM, is the process of detecting, evaluating, and reducing supply chain risks in a business. Adopting global supply chain risk management solutions may assist a business in operating more effectively, lowering expenses, and improving customer service.

Supply chain management is how a company manages the flow of its commodities, which includes all of the procedures associated with transforming raw materials used by the company into completed products or services offered by the business. It entails planning and managing the functions of sourcing, acquisition, conversion, and logistics management.

The Lifecycle of Supply Chain Risk Management

An effective strategy formulation to SCRM includes the management of all forms of risk, across all supply tiers, throughout all risk assets, including suppliers, locations, ports, and more.

When done correctly, SCRM is a critical component integrated into an enterprise’s fundamental activities. However, the lifecycle begins with the three stages listed below.

  • Risk Identification

The only approach to handling risk is to ensure that it is identified. The initial stage of the risk assessment lifecycle is to create a risk profile, which is subsequently regularly updated through active monitoring.

  • Risk Assessment

Understand the potential impact of a risk event on your organization. Keep an eye out for collaborators who have an enormous influence on sales, margins, or profit.

  • Risk Mitigation

Define both preventative and reactive strategies. These are the foundations for handling risk. Implementing practical steps can guarantee supply and preserve the brand.

Ways to Manage Supply Chain Risks

Now that one has an idea of how the SCRM lifecycle is formulated, one can go ahead and ensure that an organization can start taking measures to manage supply chain risks.

Given below are 6 ways to ensure that the supply chain remains free of all errors. However, in case of an unfortunate circumstance, it still remains salvageable.

1. Use a Risk Management Template for PPRR

PPRR is an acronym that stands for “Prevention, Preparedness, Response, and Recovery. “Organizations use it as an internationally recognized supply chain risk management method.

PPPR is extremely useful for business continuity planning. There are several templates accessible online to guide a company through the PPPR technique.

2. Get to Know Your Potential Suppliers

Manufacturers can learn about a third-party business’s operations by conducting thorough research. A fair evaluation can assist in eliminating undesirable risks. These can include:

  • Understanding whether the suppliers have a great track record of satisfying contractual commitments
  • Existing conflicts of interest in current business connections
  • Maintaining the quality standard that the organization expects.

Before taking on new suppliers and partners, manufacturers must confirm that the current supply network can satisfy existing demands.

Improve the Governance over Supply Chain Risks

To strengthen the company’s defenses, implement the supply chain risk management measures listed below.

  • Establish supply chain compliance guidelines for all of the third-party vendors.
  • Define user roles and utilize security controls to limit who may log in to your network and what degree of access they have in order to avoid unwanted tampering in the supply chain operations.
  • When entering into any contract, conduct proper checks and risk assessments on all suppliers and service providers.
  • All staff must be well trained on cybersecurity protocols.

Prevent Risks During the Sales Process

Certain hazards occur from sales activities since it is a critical link in a cycle that links back to suppliers. As the selling process advances, it may introduce new risks into the production environment.

Manufacturers must comprehend the liabilities that sales interactions subject the business to to mitigate this risk. Sales activities that are safe and secure can push efforts toward increased revenue growth.

Maintain Control over Logistics Operations

Logistics is another critical component that significantly impacts supply chain risks. Rather than relying on suppliers to transport products, firms may arrange logistics to move items closer to the plant site considering financial liabilities. They can then source worldwide when costs are matched by supply security.

Alleviate Risks by Creating Value

Most firms struggle to develop significant value in their current supply chain while reducing organizational risks. It necessitates a collaborative and streamlined effort from numerous corporate stakeholders, including supply chain as well as procurement employees, manufacturing and operations expertise, legal and financial staff.

Validating prospective third-party partnerships is essential in reducing these risks, as is working collaboratively throughout the organization. These stakeholders can then develop a supply chain strategy for increasing value inside the supply chain by using third-party partnerships.

Final Words

Supply chain risk management should be an integral part of any firm. Using the PPRR technique can help simplify the issue at hand and help fix it more efficiently. Further, remaining knowledgeable about suppliers and establishing good governance can be incredibly valuable in risk mitigation.

Moreover, ensuring that risk does not arise at sales will help prevent grassroots-level issues. Supply Chain managers should also continue to place a close eye on logistics and collaborate across departments to lessen risks and add value to the supply chain.

SCRM is an essential requirement that can save a business in dire times. Being able to fix even one phase of the supply chain can help preserve an enormous amount of resources and time. In fact, if a business is yet to engage with SCRM and its many advantages, they should not wait any further!

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