Want to know the 7 key ingredients you need in your supply chain risk management program?

Put your aprons on, because we’re here to tell you.

2. A Risk Inventory

Once you’ve decided what supply chains to focus on, your company-specific risk inventory must be specified. Typically, your risk inventory is recorded in a risk scorecard. This scorecard should include all individual risks and indicators that act as sensors for detecting risk changes. To facilitate a definition of these individual risks, it helps to create theme-based clusters such as:

  • Supply chain stability
  • Supply disruption risks
  • Market and cost risks
  • Image and compliance risks
  • Performance and quality risks

1. The Relevant Supply Chains

Some companies want to monitor all their supply chains, in which case this ingredient is pretty simple. However, if you want to focus only on your key supply chains, you need to identify what they are. Here are some parameters to keep in mind: 

  • Purchasing volume: According to the Pareto Principle, 20% of the supply chains that make up 80% of the purchasing volume can be identified. Although this isn’t the only criterion you should be using, it’s a good place to start.
  • Impact on sales: Even if a supply chain has low purchasing volume, it may severely impact whether a product or service can be supplied. This should also be a consideration when selecting critical supply chains.
  • Region: Consider which supply chains are in unstable local or national environments due to infrastructure, macro-economic or political risk.

4. Accurate Risk Identification

The primary challenge in identifying risk to your supply chain is the overwhelming volume of data that has to be sifted through.

Initial assessment of latent supply chain risk requires information from numerous third-party sources, government lists, social media and news outlets. The same applies to ongoing risk monitoring on a real-time basis for ad-hoc identification of new and emerging threats. High automation of data capture and data updates on a global scale is therefore indispensable and should be a key requirement when setting up a supply chain risk management program

3. Holistic Monitoring

For comprehensive risk management along the entire supply chain, you should monitor as many tiers of the relevant supply chains as possible. Here’s why: According to the Business Continuity Institute, a majority of supply chain disruptions originate below Tier 1 suppliers. It is equally essential to monitor relevant locations and sites; for example:

  • Major logistics hubs such as ports and airports.
  • Bottleneck regions such as the Kiel Canal or the Suez Canal.
  • Locations of warehouses and distribution centers.

6. Action plans

To complete the SCRM process and minimize the effects of a risk event, a set of pre-approved preventive and reactive measures are necessary. These steps provide the basis for addressing risk in a proactive manner using appropriate measures to ensure long-term success. 

Even if a risk event takes you completely by surprise, you should be able to immediately enact a plan to deal with it.

5. Impact Assessment

What happens when a risk event occurs? The first thing you have to know is what it really means for your supply chain. To get the full picture, you should be able to classify risk objects in your supply chain (suppliers, locations, etc.) based on high, medium and low criticality. Then, when a risk event affects one of them, you’re immediately able to judge what it’s going to mean for you. Just knowing that a risk occurred isn’t enough—you also have to understand its implications. 

7. Integration

Supply chain risk management isn’t a standalone process. The best way to fully realize the benefits of an SCRM program is to make sure it’s being used to help other elements of the organization. Are you sourcing suppliers based on their risk profiles? You should be. Are you taking risk into account when defining your category strategy? You should be. Are you highlighting your supply chain risk management program to reduce contingent business interruption insurance? You should be.

Supply chain risk management doesn’t stop at the supply chain. Make sure you’re taking advantage of its benefits for all elements of your enterprise!

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