Supply chain risk management (SCRM) is the process of coordinated and strategic steps to help organizations to identify, access, monitor and mitigate the risk involved in end to end supply chain. This will enable the continuity and profitability of the supply chain.
The supply chain is crucial for any business as it consists of different activities. It includes the transformation of natural resources, raw materials, and work in progress resources into a finished product that is then delivered to the end customer. Hence, when one process fails to provide what is required on time for the next step in the supply chain, it can disrupt the entire supply chain. Hence, the threat and disruption to the supply chain can cost in terms of the following:
Therefore, a comprehensive SCRM strategy is important for businesses to be resilient and responsive to mitigate the risk involved in supply chain. This involves the management of all types of risk in all tiers of the supply chain (suppliers, logistics, locations and more). When SCRM is implemented well, it will have a significant competitive advantage over other businesses.
Businesses can limit the impact of supply chain disruption by identifying what risks they are exposed to in their supply chain. In this part, we will discuss different types of risk. Later on, we discuss how to manage those risks and make them part of a supply chain risk management plan. This plan is to model risk management as part of an overall organization continuity plan.
Firstly, the risk can be internal (controllable) or external (uncontrollable). However, the complexity of the supply chain requires an assessment of the types of risk involved and the related factors that causes them. The following picture explains the risks are interrelated:
Source: adapted from Manuj, I. and J.T. Mentzer, (2008) “Global supply chain risk management strategies”, International Journal of Physical Distribution & Logistics Management, Vol. 38, No. 3, pp. 192-223. World Economic Forum (2012) New Models for Addressing Supply Chain and Transport Risk.
Further, the most significant factors impacting these supply chain risks are environmental, geopolitical, economic, and technological. Each of these factors have a probability of impacting the global supply chain and its impact varies.
Managing supply chain risk from end to end is increasingly important for all kinds of businesses. Having a supply chain continuity plan and having risk management tools in place helps organizations to prepare before a crisis occurs. Managing risk is the best way to mitigate a potential disaster and often part of a risk management solution strategy.
Efficient risk management requires a structured approach to SCRM and it is linked with the type of risks an organization is exposed to. Managing risk involves:
The steps involved in risk management helps to understand and mitigate the possible risk. SCRM steps are:
Now you know everything about managing supply chain risk. Do you want to experience how to manage supply chain risk by participating in the business simulation games of Inchainge? Have a look at our business games page for more information. Do you want to know more about supply chain management? Have a look at our supply chain management page.