5 Techniques for Effective Supply Chain Risk Management
Risk is essentially a part and parcel of every company’s supply chain. Companies often lose millions of dollars due to cost volatility, non-compliance fines, supply disruption, and incidents that cause damage to the reputation of the brand as well as affects their smooth functioning. This is making supply chain risk management a top priority for businesses. Furthermore, cross-border supply chain activities often have higher risks associated with them. With more number of small and medium-sized businesses rapidly venturing into international markets, supply chain risk management is becoming more important than ever before for them.
What is supply chain risk management?
Supply chain risk management is concerned with the synchronized efforts of a company that helps detect, monitor, identify, and eliminates factors that pose major threats to supply chain profitability and continuity. Supply chain risk management strategies help an organization foresee potential issues and adapt to the risks as well as unforeseeable supply chain disruptions as early as possible
Techniques to undertake effective supply chain risk management
The following are the key steps involved in a successful supply chain risk management process:
Evaluate potential suppliers
Before companies decide to replace existing suppliers, they must gain in-depth knowledge about the new suppliers. This will help companies answer critical questions about the supplier’s business practices. It is important to evaluate critical factors such as the supplier’s track record in meeting contractual obligations, the quality of goods provided by the supplier, and conflict of interest in the policies of both the parties. Also, forming strategic partnerships with a select group of best suppliers can allow companies to capture a wide variety of benefits—including the potential for scale advantages and priority service.
Monitor quantity and quality standards
Another important technique for better supply chain risk management is for companies to carefully monitor the adherence of agreed quantity and quality standards by the supplier. Despite agreeing on certain standards, several suppliers fail to match the promised requirements. This makes it difficult for companies to maintain their own high standards while delivering the final product to the end-consumers. Dissatisfied customers can even tarnish the brand name of the company. Hence, by monitoring the supplied good constantly, companies can maintain their quality standards and pave the way for better supply chain risk management.
Prevention or quick resolution of disputes
Disputes are bound to occur at different stages of the supply chain. Proactively preventing disputes from occurring or resolving them amicably can mitigate dispute-related risks and promote smooth operations. Companies must equip themselves with the right processes and technologies that are essential to quickly identify the sources of disagreement that could disrupt the supply chain.
Keep track of the products received
It often happens for businesses that they might not receive exactly what they have ordered for. Such incidents result in supply chain waste or fraud. So, it essential to keep a close track of the consignment received so that the companies do not have to end up paying for items that they have not ordered. Having a complex network of contractors can increase the risk of inappropriate markups, duplicate billing, and improper related-party billing.
Avoid sales process risks
Companies must prepare themselves for the risks that arise from sales operations for effective supply chain risk management. The sales operations of a company act as a crucial link in a loop that returns to the suppliers. This is because the customer demand ultimately affects the company’s purchasing requirement. Also, they can get introduced to new sales risks in a new environment. For instance, if a company establishes itself in a new market, it will have an impact on the procurement-supply dynamic of the business. Companies must accurately forecast and be prepared to face the demand fluctuations in different markets.
To know more about the supply chain risk management process