Supply chain risk management and risk awareness

Supply Chain Risk Management (SCRM) is the process of identifying risks, assessing them, and mitigating their effects on an organization’s supply chain. Companies implementing a comprehensive SCRM strategy can operate more efficiently, better control costs, and enhance customer service. A complete SCRM plan covers every aspect of the process, including production, packaging, handling, storage, and transport.

No matter which Supply Chain Management model your organization uses, risk management is a critical component of business success.

Risks could come from almost any entity involved with the supply chain, including:

  • Suppliers
  • Vendors
  • Shipping Agents
  • Resellers
  • Third parties

Risks can disrupt any aspect of the process, including:

  • Projects
  • Production
  • Operations
  • Sales
  • Quality
  • Accountability
  • Reputation

What are some examples of Supply Chain Risk?

Supply chain risk can come from situations including:

Price increases: Pricing changes may occur due to supply or demand changes, currency instability, or customs fees/tariffs. When pricing is subject to the volatility of the financial world, it can disrupt economic projections and even affect an organization’s profitability.

Shortages: When required components, materials, or parts are unavailable, this can lead to product delivery issues.

Supplier issues: When the relationship with a supplier is interrupted (for legal or other reasons), it may lead to the necessity of finding a replacement.

Quality issues: When supplies are received that don’t meet quality requirements or specifications, they can impact delivery while waiting for repair or replacement.

Delivery issues: Logistical challenges, carrier disputes, or other unforeseen emergencies (e.g., extreme weather, war, labor disputes) can lead to late deliveries, lost shipments, or damaged goods.

How does an organization put a Supply Chain Risk Management process in place?

Identification and documentation: The first step is mapping out the value chain of each product and identifying the risk scenarios. While some situations may be challenging to predict (the worldwide Covid pandemic is an excellent example), others could be anticipated. Paying attention to lessons from past events and critical assessment of current situations can help identify risks around location, suppliers, manufacturers, and retailers.

Prioritization within a framework: Once risks are identified, they need analysis around the probability of occurrence, and the impact should they occur. A risk-scoring method can help prioritize which issues need the most immediate attention. Each risk can be scored in aspects such as:

  • Impact on the organization if the threat comes to reality.
  • The likelihood of that risk occurring.
  • The organization’s ability and level of preparedness to deal with that risk should it happen.

Mitigation: Developing contingency plans around each risk is the most effective approach to dealing with them when they happen. While we can’t predict every unlikely scenario, the more likely scenarios could all have a response plan should they occur. 

Preparing and implementing a formal strategy: With the results of the previous steps, a business can develop its unique plan to address risks. Practices likely to be part of any comprehensive plan include:

  • Implementation of formal monitoring of risk scenarios and contributing factors, including an “early warning” system to track top risks, and improve response times in mitigation.
  • Identification of other providers for components and materials.
  • Carrying excess inventory of key parts most likely to be at risk.
  • Improved communication and planning with key suppliers.
  • Implementation of a formal risk assessment on all vendors and suppliers before committing to contracts with them.
  • Setting conformance standards for all suppliers, and monitoring performance to those standards.
  • Education of employees to anticipate issues and seek resolution earlier.

Improving supply chain performance is a collaborative process

Thurman Co. is uniquely positioned to assist organizations in various aspects of Supplier Management, including incorporating risk management into their supply chain process.

We help businesses manage projects to significantly impact their success and growth. When you’re ready to put your project in the hands of a trusted professional organization, contact us to learn more about working together.

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