4 Steps to Identify and Manage Supply Chain Risks

Supply chain management (SCM) continues to evolve and change as the world continues to be impacted by technological advances, crises of many forms, changing partnerships and available assets, all bringing the constant need for risk analysis. The largest supply chain disruptions come in the form of weather, technology and commutation. While companies cannot control disruptions like the weather, with planning and the creation of standards, they can control how they react. Risk management is a growing necessity and if not done well can negatively impact an organization.

How to Manage Supply Chain Risk 

Principles of supply chain risk management (SCRM) that companies should consider implementing include:

1. Use Probability Modeling (Research and Analysis)

Models of supply chain risks give companies a way to analyze the likelihood and potential impact of different supply chain disruptions so they can prioritize risk management efforts. 

2. Identify, Measure and Prioritize Risk (Analysis)

The only way for a company to prepare for potential disruptions is to first understand the factors to which they’re susceptible. Supply chain management involves both known and unknown risks. Companies should develop a clear picture of known risks and then prioritize those that they’re most likely to face. Which would cause the largest disruptions? Companies should have a plan to react to the most likely disruptors and the ones that carry the most risk. 

3. Integrate Risk Management Practices (Standardizations)

This could mean having a plan in place to respond to disruptions or increasing supply chain flexibility to address the most likely risks. For example, if losing one particular supplier would be devastating to your business, look for ways to stop singularly sourcing from this one vendor. (See my article How Sourcing Impacts the Supply Chain.)

4. Hedge Risk By Making Prudent Choices About Insurance (Research)

Supply chain insurance is a way to minimize the risks that are out of a company's control. Working with third-party suppliers means that even with strong risk management in place, there will be circumstances that can’t be anticipated. That’s where supply chain insurance comes into play. 

These are some of the key principles of SCM that support risk analysis. (Learn about these elements in more detail in these articles: How to Manage Disruptions in the Supply Chain and Tips to Build a Reliable Supply Chain and Improve Visibility.) 

1. Customer Focus  
2. Innovation  
3. Collaboration
4. Flexibility
5. Technology
6. Global Perspective
7. Visibility 

Finally, there are dynamic market changes happening daily. Companies must understand the financial impact of their decision-making and the need for supply chain flexibility to ensure products are delivered in the most cost-effective way with minimal risk. Along with the above principles, a company should also use these principles to manage risk: 

1. Supplier base: Identify what is important
2. Vulnerability: Assessing shortfalls
3. Implications: What consequences are there
4. Mitigation: Implementation plan of action
5. Cost and Benefit: Risk vs. reward
6. Measure Actions: Who does what when

Using these strategies, a company can work to eliminate internal and external risks that can result in a serious loss of revenues and reputation.

Additionally, innovations in data system integration are creating what is now called synchromodality, which adds more flexibility to the transport side of the logistics process. MIT describes synchromodality this way:

“A supply chain concept that integrates the flexible use of different transport modes based on real-time information. At a time when global supply chains are complex and subject to uncertainty, synchromodality has emerged at the forefront of research and practice as a tool to ensure efficient delivery performance and thus supply chain competitiveness.”

Synchromodality also has its risks—fuel prices, road infrastructure and increased environmental concerns—but is an opportunity to explore new avenues and ideas about how the global supply chain can work during times of serious challenges.

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