Supply chain risk management plays a vital role in the continuity of every business. Keeping an eye on these risks promotes inventory availability, reduces process bottlenecks, and increases profitability. Numerous risks come into play in the supply chain and this article will guide you on how you can manage these risks and prevent them from disrupting your business to keep it up and running.
What is supply chain risk management?Supply chain risk management is a process that businesses adopt to create strategies for anticipating, preventing, and mitigating risks within the supply chain network. The goal of supply chain risk management is to make the whole supply chain resilient to possible disruptions in the flow, thereby preserving value and revenues.
Steps in managing risks in your supply chainTo properly manage supply chains, you’ll need a methodology that allows you to deal with risk systematically and effectively. You can follow the steps below and apply them to your business or organisation.
1. Identify RisksYou cannot solve a non-existent problem. That being said, the first step you need to take is to determine all possible risks that could adversely affect your supply chain. While this could be a tedious process, breaking down every step in the supply chain will give you a clear view of these factors.
Examine carefully all nodes in the supply chain, including suppliers, production, warehousing, and transport. Identify also the risks that affect the product in terms of quality, price, and delivery efficiency.
There are many types of supply chain risks, but the most common are the following:
· Market risk
· Strategy risk
· Implementation risk
· Performance risk
· Demand risk
· Financial Risk
· Legal risk
When you have listed all the risks in your supply chain, it’s time to prioritise them based on impact and probability of occurrence. To determine how likely they are likely to occur, you can look at previous historical data or records that you can get your hands on. If you’re looking into a supplier, for example, dig deep and see if you can find any history of insurance claims or accidents to determine how risky they are to do business with. You can then devise strategies to mitigate the identified risks according to prioritization.
2. Promote Risk AwarenessA study in 2018 showed that risks are better averted when employees themselves are aware of possible risks in the supply chain.
Managing risks in the whole supply chain cannot be accomplished by one or a few individuals; it requires a collective effort. Therefore, you have to conduct proper rigorous training programs to increase your employees' knowledge of supply chain risks.
Aside from the common concepts on supply chain risks, you can also train them with best practices in managing risks, as well as using software for assessing risks. This is a more convenient approach because you’ll not just empower your people but also increase your company’s capability to identify and mitigate risks. As they say, two heads are better than one.
3. Increase cybersecurity protectionGoing digital streamlines the whole supply chain but there are possible threats if your cybersecurity defences are weak. Possible cybersecurity threats include malware, ransomware, and hacking – all of which can disrupt your operations, resulting in significant losses.
To bolster your cybersecurity, you have to involve all workers in the organisation, not just in the IT department.
4. Get insuranceInsurance policies are critical to keeping the whole supply chain impervious to interruptions. They do not just cover financial and legal liabilities but also safeguard you from losses, consequently preserving revenues. Having robust marine insurance policies in place to cover risks throughout your supply chain is always an absolute must.
For example, cargo insurance and marine insurance are essentially. They cover risks associated with the transit of goods transferred inland or across waters. In the event of accidents leading to damaged products, you may able to claim compensation for the losses you suffered.
Consider also having a product liability insurance policy in place. Your manufacturer may have not crafted your product properly, with the result that it causes harm or loss to one of your customers. Product liability can cover your legal fees and any damages you may have to pay as a result.
5. Proper selection of suppliersWhen talking about a supply chain, you’re not just considering a single chunk of it - but as a whole. With this in mind, it’s important to know your suppliers well before contracting them. This lets you anticipate the type of working relationship you have with them and the level of risk your business gets exposed to.
A great way to cross-examine your suppliers is to check their financial stability. Don't just rely on the financial statements they are presenting to you. You may be able to obtain information from independent agencies that provide credit assessment and evaluation.
Aside from financial viability, examine also the quality of their products. Generally, the higher the quality of their products, the lesser the risk you’ll be exposed to. Also, check their compliance with government or statutory regulations and how they treat the workers in their company. The last thing you want is a supplier engaged in practices of modern slavery.
The last thing to note in supplier selection is the diversification of sources. The more suppliers you select to source from, the greater opportunity to spread that risk.
6. Monitor and review your strategiesThere is no overnight solution to address all supply chain risks. Every risk management strategy needs testing, evaluation, and improvements along the way. To effectively monitor the strategies you put in place, you should consider instituting a governing body that will spearhead this task. Create a board of individuals who convene regularly and review the top risks within the supply chain.
Devise a system that allows you to easily monitor the whole supply chain and notifies you of any deviations. A great way to do this is to employ digital tools like Artificial Intelligence. Not only do these modern systems streamline the supply chain, but they also automatically notify you of any disruptions.
A review of the different supply chain risk management approaches from 2005 to 2018 showed that researchers used quantitative methods of simulation or modeling. While the study found that there is no "superior approach" to a risk management strategy, it is still evident that having a robust one in place is necessary for a healthy and profitable supply chain.
Let us help you manage your supply chain riskRisks in the supply chain are inevitable but they are always manageable with a proper framework and the right people for the job. It is a continuous endeavour to strengthen not just your business, but the whole supply chain network.
Our professional team here at The Sourcing Co are experts at sourcing high-quality suppliers across the Asia-Pacific for your product development and business goals. Get in touch with us for a discussion about your supply chain, and what we can do to help.