Global supply chains are essential for increasing the productivity, profitability, and efficiency of enterprises and industry sectors. They lower costs and stimulate businesses to expand into emerging and foreign markets in search of vital resources, workers, and new clients.
The management of flows upstream (inputs) and downstream (post-manufacture via distribution and consumption) is the responsibility of supply chain managers, and disruption can occur at any point along the chain. Supply chain leaders must evaluate and manage a variety of difficulties and factors that contribute to an ever-changing global business environment, including weather disasters, labour shortages, fluctuating demand, border conflicts, and trade and tariff issues.
Wicked issues like climate change, severe disasters, and worldwide pandemics can expose threats and vulnerabilities, disrupt global supply systems, and highlight our interdependence on one another for commodities and services.
One conspicuous example of how we are frequently unprepared for significant supply chain interruptions is Covid-19. At the same time, a strong commitment to development across businesses and industries to avoid similar roadblocks in the future emerged. In order to help executives predict shifts, adjust or pivot more rapidly, and improve supply chain resilience in the face of uncertainty and adversity, that depends on the integration of supply chain risk management.
Five Steps to Improve Supply Chain Risk Management
The integrated supply chain teams and supply chain managers can improve supply chain risk management by using the five procedures listed below.
- Map Every Level of Risk
Businesses with global value chains must recognise, evaluate, and monitor the main causes of supply chain risk. The supply chain may be affected by environmental hazards (or the supply chain may be affected by environmental risks), supplier disruption, climate change, forced labour and other labor-related concerns, as well as other issues.
Teams should consult with a variety of stakeholders as part of the supply chain risk assessment process to help their organisations identify and assess risk exposure at various levels and from various perspectives. Asking yourself the following questions will help you pinpoint some of the most crucial factors to take into account while mapping risks:
- From raw materials to end-of-life logistics, who are all of your suppliers, vendors, and partners, where are they based, and who are their subcontractors?
- What kind of goods or services are they offering, and how crucial is that resource to your business?
- Do you have many suppliers to meet all of your needs?
- Can the same supply shocks and interruptions affect these suppliers?
- What information flows between your company and a supplier do you have? How valuable is such information?
- How have external certifications, audits, verifications, and processes helped your suppliers reduce risks?
Investments in supply chain transparency and due diligence are crucial in this situation since they will help reveal hidden dangers and portions of complex supply chains.
- Give projects for risk mitigation top priority
Prioritise your supply chain risks once you’ve mapped them out so you can concentrate on the ones most likely to interfere with your business operations. Each risk is given a grade based on its likelihood, severity, timeline, and your company’s capacity to take action, either independently or in collaboration with other companies.
- Tolerable risk is thought to have little to no impact on your supply chain, and the likelihood of occurrence is anticipated to be sufficiently low to raise no worries.
- Low risk is anticipated to have negligible negative consequences on your supply chain; the likelihood of occurrence is anticipated to be low enough to raise only minor issues.
- The supply chain will be impacted in some way, whether it be through procurement, cost, or delay. The likelihood of it happening is high enough to justify tight control of risk factors causing it.
- High risk is regarded as having a high possibility of occurring, and the result will hurt your supply chain either through input procurement, budget, distribution, or schedule.
- Unacceptable risk is one that poses a serious threat to your supply chain and has a very high likelihood of occurring. The procurement, cost, timetable, and output of goods or services would all suffer as a result, which would seriously hurt the budget, timeline, and output.
It will be simpler to prioritise actions and allocate your investments appropriately with a uniform scoring mechanism. Once the rankings have been verified and each risk’s importance has been evaluated, you can begin creating strategies and activities to address the vulnerabilities that are most likely to result in issues in the short- and long-term.
- Work with your supplier network and outside of it
Your risk of a supply chain interruption is higher if you just use one supplier for essential parts or raw materials than it is if you have developed connections with dependable secondary suppliers and producers.
A crucial risk-reduction tactic is to widen your network of suppliers, which also gives you the chance to integrate varied new players and creative solutions into your value chain.
Next, work as true partners with your suppliers to identify and manage supply chain risks. You increase your supply chain’s resilience and that of your business by working together to enhance the economic, social, and environmental conditions.
You can better manage critical supply chain risks by forming strategic alliances with your suppliers, cross-sector collaborations with actors in international development, and pre-competitive partnerships with business competitors.
- Regularly review supply chain risks
Your plans for supply chain risk management are only as effective as they are up to date. For regular updates on internal and external developments that affect your company’s risk exposure, set up a risk governance team.
To better comprehend shifting risk environments, create and utilise partner networks with your suppliers, technical experts, and important local stakeholders in target locations.
- Make risk awareness part of the corporate culture
The COVID-19 pandemic-related supply chain bottlenecks and shortages have demonstrated that risk management is no longer the sole purview of supply chain managers. Instead, the company’s mindset needs to include risk detection and mitigation.
How a firm views its investments in supply chain sustainability is another significant change. Previously almost entirely the domain of the sustainability team, initiatives are now acknowledged as key business investments for risk reduction and a resilient supply chain.
Developing Better Supply Chain Risk Management
We may assume that supply chain risks will only rise and grow more intricate as the world becomes more complex and as our problems become more difficult (and wicked).
Fortunately, by adopting proactive risk management practises and looking for strategic partners to reduce risks before they become major problems, executives may improve supply chain resilience.
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