What is supply chain risk management?
Supply chain risk management refers to the process of undertaking strategic steps to identify, assess, and mitigate risks in the company’s end-to-end supply chain. As businesses both small and large seek to extend their global reach, risk management in the supply chain is increasingly becoming crucial. Businesses that enter into new markets often need to form new supplier relationships, engage with state-owned entities, and adapt to local laws and culture. This results in supply chain complexity that can result in a wide range of financial, regulatory, and legal risks. Supply chain risk management strategies help enterprises to foresee potential issues and adapt to the risks and supply chain disruptions as quickly and efficiently as possible.
Supply chain risk management techniques
Innovation and efficiency in contracting management
One of the emerging trends in supply chain risk management is contract streamlining. It involves having a better understanding of the costs involved in creating and negotiating old-style “legalese” contracts. Many of these are unnecessarily written in legal prose, lengthy, difficult to understand, one-sided protections. But newer styles of contract design and wording enable procurement teams to have a dramatically-higher success rate of executing well-drafted agreements. Procurement contract portfolios are a great example of how legal risks can outweigh business balance, extending the contracting cycle time and procurement efficiency. Instead, several legal and procurement groups find it better to rely on concise and well-balanced contract documents that result in easier acceptance by suppliers.
Better understanding of potential suppliers
It is important for businesses, especially in the global scenario to have a clear understanding of the third-party supplier’s business practices. This involves answering critical questions such as – Does the supplier have a strong track record for meeting contractual obligations? Are there any conflicts of interest in existing business relationships? Do the suppliers observe the same high standards as your company with respect to providing safe working conditions and protecting the environment? It must be ensured that the supplier meets all the pre-requisites of the business before onboarding a new supplier.
Supply chain risk management awareness and training
Supply chain risk management strategies cannot be successful unless significant attention is given to training personnel on supply chain policy, procedures and applicable management, operational and technical controls, and practice. Building an awareness training program provides guidelines for establishing and maintaining a comprehensive awareness and training program.
Resolve or prevent disputes effectively
Disputes are inevitable elements in different stages of the supply chain. One of the key steps in mitigating dispute-related risks and promoting smooth operations is to proactively prevent disputes from occurring or resolving them amicably in case of occurrence. The right processes and technologies are crucial in identifying sources ofdisagreement that can cause disruption in the supply chain. It is important to employ people with the right communications skills and the ability to not affect the ongoing supply of materials. A mutually beneficial resolution is often the best way to maintain a relationship that not only mitigates risk but also enhances value for the company.