Supply chain risk management has always been important, but over the last few years this importance has increased as the risks needing to be managed have become less predictable and more disruptive.
A need to develop a supply chain that is not only more resilient, but also more able to adapt to both macro and micro changes, has been growing for many businesses.
Here, we look at 3 steps that businesses can take when they’re trying to improve the way they manage risk in the supply chain.
Risk assessment
The first stage of any supply chain risk management strategy is to identify potential risks to the business. The risks that can affect your supply chain can be viewed in several ways – you can look at internal and external risks or known and unknown risks for example.
Getting your risk assessment right is key to building out an effective risk management strategy, and ensuring that you’re considering all aspects of risk is important to make sure you’re feeding the right data into the assessment.
Information that you’ll want to consider in your supply chain risk assessment should include:
• A supply chain map, showing how different parts of the supply chain interact and indicating where there may be knock on impacts of any problems – including details of tier 2 and 3 suppliers and any risks associated with them.
• Key supplier details, including their basic information and financial statements if available
• Results of a supplier evaluation, which could be gathered by a survey or interview and is used to gain a better understanding of the risks associated with that supplier
With the above and any other information necessary it will be possible to identify risks and carry out a risk evaluation, which explores the cause and effect of a risk, and a risk grading process – which grades risks based on their likelihood and scale of impact.
Strategy development
Now that you have a strong understanding of the risks facing your business, you can begin to develop a strategy that allows you to manage and respond to those risks as they develop.
Agility is important, in order to respond to new risks that may appear, and this may need to go wider than just the supply chain. An agile operating strategy has many benefits for a business and allows decisions to be made more quickly.
One popular guide for supply chain risk management is the PPRR model . It stands for:
Although this model provides general guidance for responding to risks, when it comes to exactly what measures to put in place, you’ll need to find an approach that works best for your business.
Here are some strategies and considerations you may find useful:
• Multiple sourcing – this allows the business to move fluidly between different suppliers in the event of issues
• ‘Right’ shoring – Finding the right balance between offshore, nearshore and onshoring to suit your business needs
• Regular stress testing – stress testing your suppliers at regular intervals can help uncover risks in good time
• Inventory and capacity planning – at times, stockpiling can create a buffer against supply chain issues, but it can have a negative impact on cash flow when money is tied up in surplus stock
Access to reliable data is also crucial when trying to increase agility – it will allow the business to spot issues early and rapidly make decisions that are supported by the data they are seeing. Software and technology can help to automate data collection and processing, and make it more accessible.
Monitor and review
Robust supply chain risk management should be an ongoing process, constantly adapting to cater to emerging risks. To do this effectively, it’s important to implement a monitoring process.
Ideally, this would involve maintaining a real-time view of your supply chain that allows you to pick up on changes as they occur, as well as monitoring macro and micro trends in your business, the industry, and the wider world that may affect your supply chain.
Again, digital tools can be incredibly valuable here, and investing in a digital transformation in your supply chain can deliver long term benefits.
Are you confident in your current supply chain risk management processes?
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