CASE STUDY

Risk Management Strategy – Automotive Industry | SpendEdge

Jul 23, 2021

What is Risk Management Strategy and Why is it Crucial in the Automotive Industry?

The rapid pace of evolution and advancement across industries has given rise to various novel and crucial factors that significantly impact the growth and expansion of companies. These factors include a rise in growth drivers, profitable opportunities, competitive challenges, and industry risks. In the automotive industry, developing and executing an efficient risk management strategy is crucial to the sustainable, effective, and strategically sound success of a company. A risk management strategy entails developing clear business objectives, identifying risks that may potentially impact efficiency and success rates, and developing robust systems to minimize the damage or impact caused. In the growing automotive industry, there has been a significant rise of risks and challenges, causing companies to leverage various processes and systems to overcome the challenges within their industry and stay ahead of the curve. Succeeding in a fast-paced and evolving market like the automotive industry is challenging, and often requires the use of accurate data, robust systems, and sustainable business solutions.

What are the Five Key Steps to an Efficient Risk Management Strategy?

Define Strategic Objectives: When a company attempts to introduce new systems, or adopt a novel perspective toward pre-existing processes and strategies, it is crucial to ensure that there is organization-wide clarity regarding business plans and targets, strategic objectives, and goals. By defining and clarifying these terms, companies can ensure that every new process fits their needs, and propels their efforts towards achieving primary goals. Developing a risk management strategy can be conducted more accurately, efficiently, and successfully if there transparency between departments and across the supply chain, and companies can address relevant challenges and risks.

Establish KPIs to Measure: Assessing or evaluating the success, efficiency, or efficacy of strategies being utilized or introduced into an organization requires a comprehensive understanding of the factors influencing and measuring performance. When attempting to identify and mitigate risks impacting the company, it is important to assess performance within the industry, as well as the potential changes resulting from risk management. Key performance indicators help CPOs closely assess performance, determine shortcomings, and identify problem areas that can be efficiently addressed by the risk management strategy. Additionally, it will assist companies in calculating the efficacy and results of the strategies adopted.

Identify Risks: Along the supply chain of every company, there is a range of challenges and risks with varying degrees of impact on the growth, profitability, and success of the company. As the organization expands, an increasing number of risks and challenges present themselves, and companies can often overlook supplier, logistical, operational, or monetary risks that may be causing these challenges. To develop a data-driven and accurate risk management strategy, companies must closely scrutinize their present systems and processes, and identify potential and current risks that are impacting their business, and the severity of each risk and its impact.

Categorize Risks: Every risk has a varied level of impact on the business, and as companies grow, the risks can become increasingly complex, impactful, and challenging to overcome. When developing a risk management strategy, companies often tend to overlook this fact and place equal importance on varying risks, which may lead to major risks causing losses before they can be addressed. Once the risks have been identified, it is crucial to categorize the risks as per severity, impact, and longevity, and accordingly develop solutions that can address major risks first, and then slowly tackle smaller, less challenging issues. This enables a more comprehensive, safe, and efficient way of tackling industry risks.

Report and Monitor: Identifying, categorizing, and addressing risks is a crucial tenet of an efficient risk management strategy. However, it is equally crucial to maintain data and clear reports regarding each risk, its potential impact, and the mitigation strategy leveraged to minimize the possibility of repetition or challenges in the future. Additionally, continually monitoring the problem areas, challenges, and risks identified is crucial to minimize unexpected obstacles, and mitigate the reoccurrence of any previously addressed shortcomings. Companies must routinely conduct risk assessments, and maintain a robust, real-time risk management strategy to ensure sustainable success.

Success Story

In the automotive industry, companies face various major risks, including fluctuating demand, changing consumer preferences, new government policies, environmental obligations, and constant technological advancement. As the industry grows, companies continue to face these and many other risks, and failure to tackle them efficiently can lead to major losses. A renowned automotive company based out of Eastern Europe witnessed a significant decline in efficiency, profitability, and growth, and experienced major monetary losses, challenges with market share, and high customer attrition rates consequently. The company partnered with SpendEdge, and sought to identify the shortcomings, develop illustrative systems, and overcome challenges with the help of our experts. By conducting a detailed risk assessment, our experts identified a range of major and minor risks significantly impacting the supply chain, causing losses, delays, and operational issues. To help the company tackle these challenges efficiently, the experts worked closely with the supply chain team to identify the risks, categorize them, and develop a robust risk management strategy. With the help of the new strategy, the company successfully minimized the impact of various risks, restored efficient operations, and overcame their losses with high profitability and cost reduction.

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