A recent study by Deloitte revealed that almost 85% of surveyed global supply chains had experienced at least one disruption in the past 12 months.
What is Supply Chain Risk Management?
Supply Chain Risk Management (SCRM) is defined as the process of taking those strategic steps which can help manufacturers identify, analyze, assess, and finally mitigate the risk in the end-to-end supply chain.
Today’s complex supply chains are almost inevitably subject to disruption. As this happens, more and more global companies have begun questioning how to assess and manage these risks and therefore prepare their supply chains accordingly. From global losses due to earthquakes, floods, fires that reached $150 billion in 2019 to the nearly $350 billion in losses recorded in 2017, these high costs, in combination with long recovery times, have triggered many companies to reassess their supply-chain strategies and footprints to make them more resilient to any kind of disruption.
The Supply Chain Risk Management Lifecycle
The Supply Chain Risk Management Lifecycle involves three main stages:
- Risk Identification – The first step toward risk mitigation is to accurately identify it in the first place. Manufacturers would first need to establish a risk profile and then enact active monitoring to keep it up to date.
- Risk Assessment- Next is to clearly define what possible impact a risk event could have on the manufacturing business. It is important to be aware of those partners who have a significant impact on sales, margins or profit.
- Risk Mitigation- Finally, manufacturers need to define both preventive action plans and reactive action plans for this risk. These can help provide the basis for addressing risk by using appropriate measures to secure supply and protect the brand.
Five Strategies to Proactively Manage Supply Chain Risks
With proactive supply chain risk management, manufacturers can not only avoid risks but also save potential costs in the process. Studies show that those manufacturers who proactively manage supply chain risks end up spending almost 50% fewer resources to manage supplier disruptions than those who stated that they aren’t proactive.
Here are 5 ways you can effectively mitigate risks and protect your supply chain in the long term:
- Familiarize yourself with your potential suppliers- With an in depth due-diligence, manufacturers can get to know about a third-party’s business practices. From knowing whether the suppliers have a strong track record for meeting contractual obligations to existing conflict of interests in existing business relationships to maintaining the high standards that your company has, a fair assessment can help reduce unwanted risks. Manufacturers would also need to ensure that the existing supply network can meet existing needs before bringing on new suppliers and partners.
- Avoid risks in the sales process- There are certain risks that arise from sales operations as it plays a crucial link in a loop that returns to suppliers. As the sales process evolves, it may have the potential to bring in new risks to the manufacturing environment.To address this risk, manufacturers must understand the liability that sales interactions expose the organization to. Safe and guarded sales efforts can help drive efforts towards higher revenue growth.
- Mitigate risk and create value- Most manufacturers struggle to create real value in the existing supply chain while simultaneously mitigating risks to the organization. This requires a coordinated and streamlined effort between multiple stakeholders in the business, including supply chain and procurement personnel, manufacturing and operations experts, legal, and finance. Validating potential third-party relationships is a critical first step to mitigating these risks along with working together across the business. These various stakeholders can then design a supply chain strategy for using third-party relationships to increase value within the supply chain.
- Investing in operational supplier assessment reviews- Periodic assessment reports can provide a useful reference tool for conversations between the manufacturer and supply chain partners. They provide a ready reckoner to point out potential areas of improvement and chart out a path for future progress. Most manufacturers however, fail to provide their suppliers with any report card feedback on how they are performing. Any supplier that does not receive frequent feedback will be unaware of how they are actually performing. Therefore, leading companies are now separating their supplier portfolio companies into categories based on financial spend or assigned risk to provide structured feedback which can help in the risk assessment to a large extent.
- Take control of logistics processes- Logistics is another key component that affects supply chain risks to a large extent. Instead of abdicating to the suppliers’ delivery, manufacturers can plan logistics to bring items closer to the factory location and where it makes economic sense. They can globally source where savings are balanced by assurance of supply. Manufacturers would need to take ownership of both the supply and delivery processes to understand the inherent risk, regardless of who has economic responsibility for delivery according to the terms of the sales contract.
Using Artificial Intelligence to Mitigate Supply Chain Risks:
In order to truly understand the innate nature of supply chain risks, manufacturers need a supply chain optimization software to stringent processes and capabilities for supply chain data analytics. Many organizations are now relying on advanced data analytics to look at not just the financial transaction information, but also some more specific operational details to really figure out where their potential risks lie.
The complexity of today’s manufacturing environment has made the use of supply chain data analytics critical for identifying operational bottlenecks in manufacturing, eliminating supply chain waste, reducing possible fraud, billing anomalies, and risk patterns.