Learn how to implement a supply chain risk management plan to protect your business from disruptions.
Published 13 Mar 2023
Supply chain risk management identifies, assesses, quantifies, and minimizes potential risks associated with any part of the supply chain. It involves a systematic process to identify and evaluate the impact of risks on business operations and develop mitigation strategies or plans for their effective prevention and handling.
Supply chain risk management aims to reduce costly delays, improve operational efficiency, drive better strategic decisions, and reduce overall risk. It focuses on three major areas: supply chain security, supplier management, and logistics/transportation risk management.
Supply chain disruptions expose every company to internal and external risk factors. Here are the different categories for each risk.
Supply risk encompasses potential issues involving suppliers, vendors, transporters, retailers, and external entities that can affect the successful execution of operations, performance, sales, and job functions.
These risks can lead to quality problems, legal liabilities, and reputational concerns if not managed carefully or supported with appropriate controls. Here are some examples for further consideration:
Several strategies have been developed in recent years to manage supply chain risks. The most common include:
Prevention, Preparedness, Response, and Recovery (PPPR) is a widely accepted risk management strategy organizations use in the supply chain. PPPR can be highly beneficial for maintaining business continuity planning.
Organizations should enhance their risk governance capabilities by monitoring suppliers and setting up emergency response protocols. Strengthening cybersecurity defenses and using advanced technologies like big data analytics, blockchain, and artificial intelligence can help them anticipate and monitor supply chain risks.
Investing in a digital platform to oversee your supply chain offers safety, comfort, and insight into how to optimize operations. By automating the risk monitoring process, you can maintain consistency and ensure that nothing slips through the cracks.
Too many software solutions can impede your risk management efforts if you keep business data scattered across multiple systems. Invest in a comprehensive solution that houses all your data in one centralized, organized warehouse to enable you to access analytics and predictive analytics and easily share information with others.
Think about balancing operating expenses under standard conditions with costs under extreme conditions. Typical risk management frameworks look like this:
Identifying risks is a significant part of the risk management process. Start by mapping out your current supply chain and determine which operations are most susceptible to threats. Then, deep dive into each area of the supply chain to identify all potential risks.
Comprehending your risks, the probability of each occurring at a specific location or channel, and its implications on your supply chain are vital. For this reason, risk scoring offers instant insight into which issues need to be tackled first. This method proves to be exceptionally useful in keeping up with potential risks swiftly and efficiently.
By assigning risk scores to activities in the supply chain, it becomes easier to prioritize risks and make informed decisions. You can use numbers, colors, or other visuals to illustrate which risk is most important at any given time.
Too many companies cut corners when creating their contingency plans, often due to a lack of time. The most effective and thorough method is to dedicate a lot of time to assessing the possible outcomes for each risk, pondering “what if?” no matter how arduous this might feel. Inevitably, having an agreed-upon plan that everyone comprehends ensures a prompt response if future risks occur.
Businesses can be ahead of the game by utilizing this form of modeling, ready to take action quickly if a crisis suddenly arises. Even though it may not happen as predicted, planning for possible outcomes will put you in a good position if and when it occurs.
Constructing a comprehensive plan that considers the data collected from previous steps. While each business may have its individualized risk management strategy, The Institute for Supply Management suggests incorporating the following five components into the blueprint:
Eliminate manual tasks and streamline your operations.
Supply chain risks are caused by poor communication and collaboration between entities in the chain. Poor visibility, lack of ownership, chaos, just-in-time practices, and inaccurate forecasts all contribute to these risk factors.
Subpar supplier performance poses the greatest danger to any business and should be prioritized when considering potential risks. While analyzing a vendor’s fiscal stability is always helpful in determining their aptitude, it is not the only factor to consider. Other performance facets, such as delivery accuracy, production quality, and ability to handle customer complaints, must also be considered before making final decisions.
The supply chain risk assessment checklist starts with determining how your organization defines risk. It’s different for every company, depending on the business and the industry. An assessment determines what risks are present, how likely they are to occur, and how to prevent them.
Getting the right products to customers at the right time and place requires efficient supply chain management. By optimizing distribution systems and maintaining accurate inventory records of finished goods, businesses can ensure that their customers are always satisfied with timely deliveries. It helps establish trust between buyers and sellers while strengthening relationships within the industry.
Utilizing supply chain risk management tools helps you track and maintain your supply chain sustainability. These tools can streamline operations such as order intake, shipping, procurement of materials, and inventory control. SafetyCulture (formerly iAuditor) is a robust cloud-based app that can help you manage supply chain risk with its many features ideal for the supply chain management.
Some of the benefits of using SafetyCulture include the following:
Rob Paredes is a content contributor for SafetyCulture. He is a content writer who also does copy for websites, sales pages, and landing pages. Rob worked as a financial advisor, a freelance copywriter, and a Network Engineer for more than a decade before joining SafetyCulture. He got interested in writing because of the influence of his friends; aside from writing, he has an interest in personal finance, dogs, and collecting Allen Iverson cards.
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