Why is Supply Chain Risk Management (SCRM) Important?
Globalization, the upsurge of growing economies, and the increasing complexity of supply chains and value chains have given rise to a new variety of challenges, growth drivers, and opportunities across industries. To successfully capitalize on an opportunity and mitigate challenges, it is crucial to develop robust and sustainable supply chain strategies and address potential roadblocks and obstacles with supply chain risk management. New technologies, digitization, and supplier relationships have been the cause of significant expansion and substantial challenges simultaneously. The growing prevalence of cyber-threats, supplier failure, changing regulations, logistic and transport issues, and raw material obstacles can impact supply chains in differing ways and must be efficiently addressed. Supply chain risk management focuses on and formulates strategies for downstream and upstream challenges and minimizes financial, operational, functional, reputational, and legal risks. Developing comprehensive risk management systems can help improve vendor and supplier relationships, formulating preemptive strategies to tackle potential expansion challenges, provide an unparalleled competitive advantage, and protect your organization.
Significant Supply Chain Risks Faced by Companies
Raw Material Shortages: For many industries dependent on chemicals, fossil fuels, electronic components, and more, raw material shortages have been a growing concern. As governments and policies change, so do price, capacity, and availability of various crucial resources. These changes have led to a severe impact on supply chains across industries and left many companies stranded and unsure of their next step. Supply chain risk management helps companies predict and prepare for challenges of this nature by potentially identifying alternative suppliers, resources, or offerings, to bridge the gap caused by losses from these occurrences. It also helps companies organize inventory and maintain a stronger supply chain.
Changing Regulations: Recently, most products are combining components from varying factories, regions, and countries. This widespread supply chain can lead to complexities regarding regulations on safety, import and export, pricing, raw materials, and labor. To maintain an efficient and high-quality supply chain, companies must analyze and prepare for current regulations and preemptive strategize for potential modifications due to social or political changes in the geographical regions. With a well-established supply chain risk management system, companies can keep pace with changes that impact the supply chain and mitigate potential losses, changes, or shortages.
Cargo Theft and Cyber-Threats: Rising connectivity, smart factories, widespread digitization, and automation have transformed manufacturing, production, supply chains, and maintenance in every industry. The increased presence of digital platforms and the high volume of crucial data available on cloud-based software or computer systems have led to increased cyber-threats and crimes. These issues can cause minor discrepancies in the chain, lead to significant losses and major detriments to a company’s profitability while also putting employees, consumers, and professionals at the risk of losing data. SCRM aims to develop comprehensive systems to identify, address, and mitigate risks of this nature preemptively. Robust software, efficient systems, and data-driven strategies can address this major challenge in the growing world of IIoT.
Supplier Inconsistency: Natural disasters, economic challenges, bankruptcy, change of policies, and shortage of materials are common reasons suppliers struggle or fail to meet contractual demands. In cases of major disasters, such as the COVID-19 pandemic, suppliers and manufacturers alike may face various challenges, including loss of labor, financial challenges, stringent regulation, hold on business, and more. As a company, it is essential to develop contracts and relationships with various suppliers to overcome these potential challenges’ business impact. Supply chain risk management helps you predict potential supplier challenges and ensure that inconsistencies from their side cannot significantly impact the organization, profitability, or continuity of business.
Environmental Risks: As global warming and other ecological crises continue to impact growth, resources, business, livelihood, and quality of life, companies need to adapt their policies, approaches, and offerings to adhere to changing lifestyles. Automotive and energy sector players have significantly transformed their offerings and services to meet consumers’ evolving eco-friendly demands. This has mitigated the potential of significant losses while propelling them into a new era. As environmentalism and government investment in reducing carbon emissions continue to rise, SCRM can help companies prepare for upcoming changes, overcome sudden developments within their sector, and develop strategies that adopt and execute newer technologies.
Create amazing cost saving opportunities in your business. One must follow these insights and develop a strategic supply chain risk management process to understand the supply chain risks and how to eliminate them.
Best Practices in Supply Chain Risk Management (SCRM)
Identify and Quantify Risks: To build a strong risk management system, it is imperative to preemptively identify, analyze, and strategize for relevant and potential risks within a market or supply chain. Risk management aims to address and mitigate risks rather than resolve situations after impact. During this process, supply chain experts should identify all potential risks before, during, and after the production process, and address the same with the teams, managers, or professionals concerned. To ensure an efficient approach to tackling said risks, they should also be quantified and prioritized as per their importance, impact, or potential damage. This step helps professionals address major risks immediately and appropriately delegate concern or labor to various risks.
Build Strong Contingencies: Each concerned team member and manager must consider the risk, the potential impact on the supply chain, and eventual implications for the company. Utilizing this information, they must understand the severity or extent of the risk and develop appropriate processes to tackle the same. For instance, a team must prepare for potential supplier delays or legal challenges by creating systems for suppliers to refer to, maintaining alternative suppliers, and ensuring absolute regulatory compliance from both parties. This process can help eradicate minor risks and efficiently address, tackle, or reduce the impact of major challenges.
Keep Pace with New Technologies and Threats: As technology continues to develop, digitization, new systems, and automation continue to expand, become increasingly efficient and enter the world of production and manufacturing. While traditional challenges such as supplier delays, regulatory issues, and raw material shortages continue to exist, IIoT and digitization have introduced new barriers and risks into supply chains. Cyber-threats of various kinds impact organizations’ ability to efficiently produce, protect data, maintain continuity, and successfully implement preemptive maintenance. New systems require new solutions, and for a productive risk management strategy, it is crucial to keep pace with recent developments.
Limit Access and Exposure: As supply chains grow wider and spread across the globe, an increasing number of actors and contributors have access to elements and components of various products. Limiting exposure to unnecessary actors reduces potential risks, improves monitoring of supply chain impact, and ensures that the actors perform their roles. While maintaining visibility and transparency through the overall supply chain is important and beneficial, it is also crucial to streamline, maintain dedicated processes, and mitigate multiple processes and people’s potential impact.
Regular Monitoring and Reviewing: Supply chain risk management is a continuous process that requires regular monitoring, reviewing, and modifying. As supply chains become more complex, companies must keep track of changing factors and drivers and leverage supply chain professionals’ expertise to ensure continuity and efficiency. Although there are multiple sectors and teams involved across the supply chain, enabling efficacy and expansion requires visibility and transparency for stakeholders and relevant, up-to-date strategies that address all potential current and upcoming risks in the market. All industry developments, trends, challenges, and growth drivers significantly impact a company, and continuous supply chain risk management helps limit and deter major obstacles.
Maintaining and improving an efficient supply chain requires significant investment, expertise, consistency, and regulation. Supply chain risk management strategies help companies identify, evaluate, and mitigate obstacles and roadblocks within a market or an organization and inhibit the impact of various risks on a company’s overall performance. The growing influence of digital platforms, cyber-threats, developing economies, unstable socio-political scenarios, and changing global regulations have made it increasingly imperative for companies to create preemptive and sustainable strategies within their organization. Leveraging supply chain risk management solutions can help companies reduce costs, develop improved supplier relationships, and overcome detrimental industry developments. As industries grow, companies can also adopt new technologies, implement new processes with reduced challenges, and have a lesser impact due to risk management strategies. Efficient SCRM can serve as the differentiator between efficient, continuous production and unsatisfied consumers, legal challenges, and operational issues.