Supply Chain Risk Management (SCRM) is the process of identifying, assessing, and managing risks that can lead to supply chain disruption of products, services, or information. SCRM involves pre-emptively managing internal as well as external threats most likely to negatively impact supply chain performance, profitability, or reputation.
SCRM is not merely reacting to disruptions once they have happened—it's about developing systems, procedures, and strategies that anticipate and decrease the likelihood and impact of disruption. SCRM brings continuity to business and helps businesses create a robust supply chain.
In the presence of an integrated world, disturbances to a part of the supply chain can lead to ripple effects for the whole system. For example, if a large Chinese supplier blacks out due to a flood, a German producer will not be able to supply its products as planned.
Here are key reasons why SCRM is extremely critical:
Protects Revenue: Supply chain disruptions usually lead to delays, missed sales, or increased expenses.
Guarantees Customer Satisfaction: Customers desire deliveries to be completed in a timely fashion. Delays can ruin brand loyalty.
Facilitates Compliance: Sectors have their own regulatory needs for sourcing, quality of products, and security.
Facilitates Resilience: Possessing an effective risk management plan enables companies to recover faster from unforeseen events.
Increases Reputation: Companies that are reputed to be dependable have more business partners and customers.
Supply chain risks are categorized under several categories. Understanding them helps in formulating a solid risk management plan.
These are out of the company's control.
Natural Disasters: Earthquakes, floods, hurricanes, etc.
Geopolitical Risks: Trade wars, sanctions, political instability.
Cybersecurity Threats: Hacking, ransomware attacks.
Economic Risks: Currency fluctuations, inflation, global recession.
Pandemics and Health Crises: As seen with COVID-19, which crippled global supply chains.
These occur within the company or its immediate stakeholders.
Supplier Failure: Insufficient quality, financial disasters, or capacity issues.
Operational Risks: Machinery failures, labor troubles, or insufficient stock control.
Logistical Risks: Traffic congestions, port congestion, customs issues.
Technological Risks: Dated infrastructure, software malfunctions, or ERP failures.
Associated with long-term business decisions.
Single-Sourcing Strategy: A single supplier could be a risk.
Outsourcing Risks: Loss of control or quality issues with third-party vendors.
Location-Based Risks: Manufacturing in high-risk locations to get cheaper labor can backfire.
A good SCRM plan involves a number of important steps. Let's dissect them:
Identifying potential risks along the supply chain is the initial step. This can be achieved through the use of:
Risk mapping
Supplier audits
Scenario analysis
Industry benchmarking
After identifying risks, evaluate them on the basis of what happens if it occurs? This helps to prioritize the risks. A high-likelihood, high-impact risk needs to be addressed as a matter of urgency.
Develop strategies to reduce the probability and/or impact of each risk. Generic mitigation strategies are:
Dual sourcing: Do not rely on a single supplier.
Buffer inventory: Keep safety stock in case of a demand surge.
Geographic diversification: Spread operations across multiple geographies.
Contractual safeguards: Use penalty clauses or force majeure in contracts.
Insurance: Cover losses for specific risks like theft, fire, or cyber attacks.
Periodically monitor your supply chain to detect arising risks or changes to existing ones. Monitor such indicators using key performance indicators (KPIs) and dashboards:
Supplier lead times
Inventory levels
Delivery delays
Incident reports
Regardless of the most efficient planning, some disruptions are inevitable. A crisis management plan ensures rapid recovery. It must possess:
Clearly defined communication channels
Well-established roles and responsibilities
Standby vendors and transport companies
A business continuity plan (BCP)
Digital SCRM relies greatly on technology. Some of the most widely used tools and developments are:
These provide real-time monitoring of products, shipments, and supplier performance.
AI will be capable of predicting disruptions using history, weather, and politics. ML algorithms will recommend optimal decisions on inventory, purchasing, and logistics.
Blockchain offers security and transparency for transactions and records, reducing fraud and increasing traceability.
SAP Ariba, Resilinc, and Riskmethods are software tools that offer risk analysis, supplier mapping, and threat detection.
IoT sensors track temperature, location, and goods movement in real time—particularly essential in pharmaceuticals and food.
Involve All Stakeholders: Risk management is not just for procurement. Get logistics, finance, IT, and senior management involved.
Revisit Risk Plans Every Six Months: The world doesn't stand still—your plan shouldn't either.
Train and Educate Employees: Employees need to be trained to recognize early indicators and act quickly.
Make Decisions Based on Data: Leverage analytics and real-time information to make risk strategy decisions.
Build Strong Supplier Relationships: Honest, open relationships with suppliers increase visibility of risk and trust.
Supply Chain Risk Management is not a choice anymore—it's a must. In an age of uncertainties, from climate crises to cyber attacks, companies that make the investment in locating and reducing supply chain risks will have a tremendous competitive edge.
SCRM not only shields businesses from financial loss but also guarantees long-term sustainability and customer satisfaction. Learn about the appropriate tools and strategies of supply chain risk management by joining supply chain management courses at London Crown Institute of Training and convert supply chain risk into opportunity.
