Supply Chain Risk Management and Its Mitigation Strategies
As supply chain companies mature with budding scopes and complexity, supply chain risk management becomes inevitable in mitigating unexpected disruptions. Here is a guide that can help you understand associated risk facts in the supply chain industry and how the use of AI, SCM software, and overall digital transformation has completely changed the game for companies.
What Is Supply Chain Risk Management?
Supply chain risk management is a technique aimed at strategising, reassessing, and mitigating risks involved in the supply chain. These risks associated with an organisation’s supply chain can be both ordinary everyday ones or rare exceptional ones. The ultimate purpose of executing supply chain risk management is to ensure continuity of operations and reduce vulnerability at a professional level.
How to Mitigate Them?
Mitigation strategies are now successfully developed that range from personnel to software assistance. Furthermore, there is always a possibility of cyber interference. However, here's what you can do.
Adopt The PPRR Model
An accepted model used globally, the abbreviation, PPRR, stands for prevention, preparedness, Response, and Recovery in this particular order. While prevention tactics depend solely on accidental occurrences of risk factors, preparedness and recovery depend on building contingency plans, robust budget estimation, and management skills. Response time is a qualitative parameter that is subjected to degrees of harmony and coordination within the organisation.
It is natural to outsource certain aspects of your supply chain to third parties. However, allowing third parties to strictly adhere to certain standards of supply chain compliance is of the utmost importance. Additionally, layered accessibility and permissions for all your users can effectively reduce unnecessary interference in your supply chain.
Before outsourcing duties and responsibilities, one can always diligently create an account of possible risks associated with outsourcing and create contingent plans to secure business risks. Comparing the pros and cons can help you evaluate and account for the risks associated with certain business plans.
Data centralisation is vital in that it creates easy access to harness data, analytics, and forecasting insights, as well as investing money and effort in finding comprehensive solutions. Using too many software tools to find solutions can end up causing disruptions in risk management.
Types of Supply Chain Risks
To mitigate and find solutions for risks involved during any end-to-end supply chain, companies broadly differentiate these risks into two broad categories, namely internal and external supply chain risks. Below we have the conditions that qualify these issues as internal or external and the difference between the two.
Internal Supply Chain Risks
Internal supply chain risks entail those issues that can be caused at the organisation’s end. These risk factors occur within your system and can be easily avoided by employing risk assessment supply tools, analytics software, and much more. No matter how efficient your system is, you are bound to face issues in processes that are under your control.
- Manufacturing Risks: Manufacturing risks are those that are caused by disruptions in a key step of the entire project plan. This can lead to hardships that can completely throw you off schedule, thus posing threat to the workflow.
- Business Risks: These risks mostly tend to issue of personnel management, the absence of reporting, and other processes that are instrumental to ensure normal workflow.
- Planning and Control Risks: These risks are a direct product of poor predictions and assessments that can not only affect the quality but also lead to the collapse of the entire business operation due to poor budget management.
- Mitigation and Contingency Risks: These risks are a result of the sheer absence of a contingency plan in case of supply chain risks.
External Supply Chain Risks
Contrary to the previous category of supply chain risks, external risks are risks that do not fall in your domain. This makes these risks harder to solve, mitigate, and might end up costing you a lot of money. The possibility of external supply chain risks can be pretty hard to predict, which makes it difficult to keep a contingency plan at bay at the time of occurrence.
- Demand Risks: Demand risks are a product of miscalculating and lack of judgement skills to predict product demands that require yearly prediction of product trending.
- Supply Risks: Supply risks occur when the company delivering raw materials does not deliver on time. These issues arise when you outsource the supply of raw materials to different companies.
- Business Risks: These are exceptional risks when your supply demands are not met due to the sale or purchase of your supplier company. Such issues can create disharmony in your supply chain for a long time, leading your company into disrepute in the market industry.
- Environmental Risks: These are risks associated with amendments to law and policy changes at a governmental level. These risks pertain to a change in the political atmosphere of a nation.
Steps for a Successful Supply Chain Risk Management Plan
- Risk Evaluation: Sit down with your core team to map out all the risk factors in every step of the process. Then, calculate how likely each risk is per activity or chain. The more the variables, the more the probability of risks. You need to know what is essential for your company to be in control of.
- Develop Real-Time Contingency Plans: Building contingency plans is a must to ensure cost-efficiency and value for time and quality. Researching costs associated with mitigating actions and measures can reduce vulnerability and enhance cost-saving tactics.
- Defining Roles and Responsibilities: Risk management involves assigning employees definite roles and responsibilities. Everyone involved in the process must be aware of the possible risks so that reporting is done efficiently. This indirectly ensures lesser response time and subsequently adds to cost-saving tactics.
Choosing the Right Supply Chain Risk Management Solutions:
The sine qua non for every supply chain company attempting to ace risk management is SCM software. Machine learning and artificial intelligence converge to fight the risks at every step of the supply chain—from manufacturing to storage inventory—to identify the hidden nooks and corners of risk possibilities
Real-time visibility to address issues and find resolutions, using ERP systems to handle critical operations for mature supply chain companies, and handling business scales using cloud systems that are less resource-intensive are some of the other supply chain risk management solutions to ease your mind right away!