Risk 360

The Importance of Supply Chain Risk Management

Supply Chain Risk Management is a comprehensive term that merges two terms into one is Supply Chain and Risk Management. Supply Chain Risk Management Process is an integrated strategic process to identify, monitor, assess, and mitigate the risk of an organization. The implementation of strategies helps in managing the operational and exceptional risks by the continuous evaluation of the supply chain to ensure continuity and profitability.

It can be taken as a whole process starting from acquiring raw materials, converting them into finished goods, and selling them across various lines of manufacturing and distribution channels. It comprises both physical (offline) and virtual(online) goods. Customers form the backbone of the organization which makes it inevitable for the supply chain to be critical and proper functioning for an organization.

The scope of Supply Chain Risk Management is immense and compasses all areas of the supply chain which is pervasive at all levels. Risk possesses a disruption, hurting the supply chain performance. Thus, effective risk assessment is essential to reduce costs and increase the sustainability of the organization in long term.

Traditionally, Risk Management was seen as the sole responsibility of the finance department as it would affect the revenue and profits of the organization. However, now it’s been realized that almost all departments are interconnected with the supply chain so Supply Chain Risk Management needs to be viewed as a Holistic approach as it would impact all areas of business.

Top Benefits of Supply Chain Risk Management Strategies

  • As Technology is accelerating fast with the changing dynamics of the economy and environment, Machine learning and Artificial Intelligence is paving their way, supplementing in planning for Real-time Root cause Analysis. It would reduce the happening of an event again and minimizing the impact as well.
  • It would lead to Customer satisfaction which requires the supply on time which in turn results in the retaining and returning of customers. For Example- Amazon has set a good example in perfecting its customer satisfaction by acquainting them with the same day or next day delivery of goods.
  • Developing a Supply Chain Risk Assessment profile would list down the supply chain risks that would form a catalog. This would assist with having readily available information on hand to start with.
  • Practice Scenarios will help to prepare for unprecedented situations like Pandemic COVID-19 and would minimize the impact of the real event.
  • Alleviating the obstructions of the Supply Chain would offer a competitive advantage for the companies.

One Perspective of an Effective Supply Chain is to have compatibility with an organization’s business strategy & mission statement, market, and supply chain partners. Supply Chain operations must align with the overall strategy of the organization so that it does not generate risk for the entire organization. There is not a single approach to supply chain risk management as the organizations with different commodities selling would require a different approach to tackle risk. Risk Management covers both Known and Unknown Risks. Supply Chain Risk are unwelcomed results of an event which occur with the probability, creates an impact on the management. The Risk Priority Number (RPN) is directly proportional to the importance of risk and the intensity of its impact on profit, logistics, and reputation. Some of the Prominent Risks of the organization are:

  1. Instability of the Supply Chain
  2. Stockouts
  3. Insolvency or loss of the suppliers
  4. Defective goods
  5. Natural Disasters
  6. Deliberate acts of Information thefts, industrial espionage, terrorisms

Supply chains are composed in such a way that maximum potential value is delivered even in case of high probability operational types of risks. Agility and Resilience play a major role in absorbing the supply chain disruptions.

Why is Supply Chain Risk Management Important?

  • Risk management stimulates many supply best practices. It would act as a key stakeholder in eliminating the waste and would save the losses that could have occurred due to the deployment of wasteful resources.
  • ̥Risk management amplifies the supply chain partner relationship- as risk management would contribute to increasing the trust, also joint risk sharing, and risk information will improve.
  • ̥It helps to have access to a wider look of the supply chain – as it would address the risk exposure beyond the organization’s facilities, into the broader domain of geographies and capabilities.
  • ̥The reality of Latent Risk- It alerts the organization to concentrate on a very essential area of concern by adhering to strict vigilance on the risk upcoming and planning, deciding, and implementing solutions to improve supply chain
  • Providing Organization with Reward in return to the risk it bears- Proper Risk management ensures that risk is minimized optimally while the company seeks its rewards from its people, assets, and resources.

Recognizing the supply chain requires the identification of stringent processes and the power of supply chain data analytics. As addressed by Larry Kivett, a Deloitte Risk and Financial Advisory Partner. Many companies are already working on it to make use of data analytics to sense the financial transactions as well as detailed operational reports to know their potential risks. Data Analytics would also help in identifying the waste, fraud, anomalies, and risk patterns while chain management. Moreover, proactive risk management in the supply chain has proved to be a cost-effective strategy.

The Biggest Supply Chain Risk of the Year 2020 was undoubtfully the Covid-19 pandemic which resulted in trade restrictions, shortages of necessities, and especially medical supplies. The pandemic brought forward the vulnerabilities of lean operations. Even the Big Companies realized the importance of Supply chain management and the extent to which it can get impacted by unpredictable times as they were not adequately prepared to manage this disruption. As many businesses were operating under the single-sourcing strategies, they weren’t ready to absorb this shock. The shutdown of primary suppliers, inventory stockouts, lost sales and lack of risk management in logistics were the stumbling blocks for almost every manufacturing and trading organization that left companies vulnerable to product shortages, supply delays, loss of demand, and high costs for them.

With the Turmoil created between China and India, its repercussions can lead to global supply chain risks. As the demand rises with competition going parallel, Indian Market business needs to focus more on domestic manufacturing and employment by building more resilient supply chains while Redesigning, Rethinking, and Redeveloping their approach to Lean Strategy. The challenge ahead for the organizations would be to develop a low-cost product without weakening their competitiveness.

A business will prosper when it has a strong distribution channel and effective supply chain management. Leaders who work at the forefront in an organization must understand and concentrate on the factors that would promote a substantial risk management system in the supply chain. Factors like managing vendor relationships, strengthening the payment protocols, and realizing the geographical challenges are critical for the growth of the company and for keeping risks under control.

Reference

https://reciprocity.com/what-are-the-benefits-of-supply-chain-risk-management/

http://www.apics.org/docs/default-source/industry-content/suppy-chain-risk_short.pdf?sfvrsn=0

https://www2.deloitte.com/us/en/pages/risk/articles/risk-management-in-supply-chain.html

https://www.unleashedsoftware.com/blog/supply-chain-risk-management-in-2021-and-beyond

Blog Published By: Sakshi Mishra, Student Risk Committee Member

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