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Supply Chain Risk Management

What is Supply Chain Risk Management?

Supply Chain Risk Management Definition: Supply chain risk management (SCRM) involves monitoring for and identifying potential threats to the supply chain. Although there is no way to completely eliminate risk, many issues can be avoided and contingency plans can be put into place to minimize or mitigate the impact on operations and/or profitability.

Supply Chain Risk Management Examples: Generally speaking, there are two types of risk associated with supply chains. There are things that are impossible to predict and plan for, such as natural disasters, epidemics, and acts of terrorism, and there are other things that can be planned for, provided an organization has the data necessary to observe and act on early indicators. This may include:

  • Supplier/Production Disruptions
  • Warehouse Shortages
  • Transit Delays
  • Theft
  • Consumer Demand Changes
  • Cyber Security
  • Software Risk

The Role of Software Risk Management in Supply Chain Reliability

Because there are many potential issues that can impact the supply chain, executives have the difficult duty of assessing which problems are likely to cause the most harm to operations and profitability. Although cyber security is a core focus, there are numerous ways software can impact the reliability and profitability of a supply chain and not all of them are apparent, even to those in IT. While there is some risk involved in the hacking or insertion of malicious code in software, most issues surround unintentional coding errors, which routinely go undetected. As the infrastructure and architecture grow, these errors can create vulnerabilities and cause unexpected conflicts. By identifying these issues in advance and taking steps to reduce their impact, the risk is effectively managed prior to breakdown of the chain. Bear in mind, these errors can occur at a local level as well as at any stage in the supply chain, which is why it’s important for organizations to work with vendors and companies that have systems and transparency in place.

Supply Chain Risk Management Best Practices

Automation: Supplier risk management (SRM) processes, including the collection, management, and analysis of data, should be automated. Human eyes cannot always detect errors, let alone conflicting codes within a system.

Supplier Transparency: Performance information from suppliers should be readily available and included in analysis.

Early Detection: The supply chain risk management process should make use of automation software detect potential red flags before they become a problem.

Classification: All potential risks should be identified, classified, and prioritized in order to determine which corrective actions offer the greatest ROI.

Plans & Contingency Plans: A supply chain risk management plan should be developed and include methods for managing imminent risks as well as for minimizing the impact of issues that cannot be prevented or would be cost-prohibitive to prevent.

Monitoring: Supply chain risk management tools should be used to identify new triggers, even after an assessment and corrections have been carried out.

Collaboration: SCRM metrics and information should be available to various departments and heads at the same time for easy collaboration regarding supply chain risk management strategies.

Leadership: SCRM should be overseen by one leader, even if duties are delegated to a team. Historically, organizations that assign a lead, usually an executive or VP, to handle SCRM see the greatest ROI. These organizations are also the only ones to see in excess of 100% ROI on their SCRM efforts.