With the globalization of supply chains, the number of third-party logistics (3PL) providers has increased, substantially. However, business strategies such as outsourcing, supplier consolidation, and low-cost sourcing offer immense opportunities but have several risks associated with them. This has forced decision-makers to think about why is supply chain management important and what are some of the best practices to mitigate supply chain risk.
At SpendEdge, we understand the risks associated with a global supply chain and to help companies answer questions such as “why is supply chain management important?” and “how to mitigate supply chain risk?”, we have listed below some of the best practices for managing a supply chain.
Why is Supply Chain Risk Management Important?
With companies across the globe focusing on becoming more efficient, supply chains have become extremely vulnerable to risks. Most firms fail to perform an effective supply chain risk assessment before outsourcing their products and services. At times, they simply rely on annual risk registers, which are usually created for insurance companies. A failure to identify and minimize these risks can lead to supply chain disruptions and profit losses. By improving supply chain risk management capabilities, companies can easily analyze dynamic factors that may lead to risks.
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Supply Chain Risk Management Best Practices
SpendEdge has identified some of the best practices to help companies manage risks in the global supply chain and achieve better consistency and value. They include:
- Innovations in contract management: Companies can adapt to newer styles of contract design rather than following old-styled onerous ones. This will enable them to streamline contracts by understanding the significant cost of creating and negotiating old-style “legalese” contracts.
- Supplier insurance and limitations of liability: Organizations using external suppliers for products or services, either upstream or downstream, necessarily need to evaluate potential liability exposure. Every contract must have provisions of protections by limiting liabilities, ensuring security against legal liabilities, and insurance of suppliers.
- Visibility of suppliers’ financial stability: By leveraging predictive financial stability data, companies can gain highly positive SCRM visibility to a firm’s management team for free. Additionally, it can warn procurement professionals of potential supply chain failures.
SpendEdge delivers robust, real-time procurement market intelligence solutions to help sourcing and procurement professionals to improve supply chain risk management capabilities. Our innovative procurement solutions help enterprises to transform the structural capabilities of businesses and improve execution efficiency. Our state-of-the-art supply chain risk management solutions also help enterprises to transform structural capabilities, improve execution efficiency, and achieve better cost savings. We provide businesses with actionable insights and techniques to improve their procurement capabilities.
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Why is supply chain risk management important
Supply chain risk definition
Risk refers to the probability of any undesired event caused due to external or internal vulnerabilities which can be avoided by using preventive actions. Supply chain risk includes any type of risk that is associated with a company’s supply chain. These risks may be anything ranging from natural calamity in a region that the organization procures raw material for production activities to transportation strike due to which finished goods cannot be supplied to the market. Supply chain risk is the deviation from the expected or standard performance of these functions. Including demand planning, sourcing, production, supply planning, transportation, and reverse logistics.
What is supply chain risk management?
Supply chain risk management refers to an organization’s coordinated efforts to identify, monitor, detect, and mitigate any threats to supply chain that can consequently affect the company’s continuity and profitability. Cost volatility, supplier financial issues and failures, material shortages, and natural and manmade disasters are some of the primary examples of supply chain risk. Global supply chain leaders use supply chain risk mitigation strategies and software in order to foresee potential issues and adapt to these risks and unforeseeable supply chain risk as quickly and efficiently as possible.
Supply chain risk is an inevitable component of a business, and these risks evolve and become more prevalent with time. In this dynamic scenario, yesteryear’s supply chain risk management strategies often prove to be ineffective. Businesses having a poor grasp of hazards in the supply chain will increase freight spend and diminish the brand value. However, having an idea about the supply chain risk that companies endure in the global market will help reduce their impact. This will also enable shippers to mitigate the likelihood of occurrence and minimize disruptions simultaneously.
Unfavorable weather conditions
Extreme weather is a significant supply chain risk to ocean freight activities. Tropical storms can prove disastrous for ocean carriers. The recent reports on the global climate change indicate tropical storm threat is on the rise. One of the ways in which shippers can avoid such supply chain risk is through re-evaluating ocean route used and determining which carriers can increase shipping in anticipation of tropical storms.
In the age of modern trade, supply chain risk exists within the connectivity of systems. The integration and modification of systems increase the risk even though systems can be integrated through an open-source software. Furthermore, poorly integrated systems could lead to bottlenecks and disruptions in the supply chain. To stay prepared for such contingencies, companies must create a backup data resource and decentralize the data storage. It is also vital to ensure that the system connectivity is on a secure network. Furthermore, companies must give emphasis to avoid unnecessary modifications, and work with expert supply chain systems’ integrators in order to maximize profitability and efficiency.
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.
Gain more insights into developing the right supply chain risk management strategies for your business
A leading player in the food processing industry was looking at devising effective supply chain risk management strategies. Their inefficient procurement strategies had greatly impacted their bottom line as a result of which they wanted to implement a detailed risk assessment process to gain a competitive advantage.
SpendEdge was approached by the food processing client to leverage its expertise in risk assessment and develop an accurate strategy to mitigate risks in procurement. The supply chain risk assessment engagement entailed a quantitative analysis of various supply chain categories to enhance the risk management process.
The client is a well-established food processing firm with business units and operations spread across Europe.
The food processing company was facing several challenges owing to their inefficient supply chain risk management strategies.
How did SpendEdge Help the Client?
- Step 1: Identify the risk factors
The initial step revolves around the identification and estimation of the impact of supply chain risks on business operations. Risks in the supply chain of food processing companies can deter them from achieving their business goals. Hence, an effective risk assessment process plays a key role in helping them achieve their organizational goals. Also, by doing so, food processing companies can classify risks based on the severity of their impact.
- Step 2: Evaluate the risks and devise effective control measures
Any risk assessment process deals with three types of resources namely – people, business functions, and technology. However, identifying the hazards and employing effective control measures can go a long way in helping food processing companies prevent their future occurrence to avoid catastrophes. Also, it’s imperative to establish a risk assessment process that is dedicated to continuously gathering, interpreting, and acting on the gathered data.
- Step 3: Review the risk assessment process and make necessary changes
To select an effective supply chain risk assessment process, it is essential to analyze the gathered data to identify potential risks and develop strategies to avoid major losses. The devised risk assessment process played a major role in enhancing the procurement capabilities of the client.
Key questions answered in this supply chain risk assessment engagement include:
Benefits of the Engagement:
The risk assessment experts at SpendEdge devised a three-step holistic approach that helped the food processing company to devise a precise risk assessment process top tackle their supply chain challenges.
Importance of Risk Assessment for Food Processing Companies
A major concern for food processing companies revolves around effective supply chain management (SCM). But many are unaware of the fact that the key to an effective supply chain management system lies in its ability to detect and prevent risks. Hence, leading food processing companies are focusing on leveraging the efficiency of the deployed assessment process to overcome supply chain failures.
Our supply chain risk assessment solutions are guided by the principles of supply market intelligence to help clients enhance their overall supply chain efficiency. Also, a customized risk assessment process empowers food processing companies to be more confident in their data by quickly detecting supply chain risks.
In this engagement, the devised process followed a three-step approach that enabled the client to enhance supply chain efficiency. The risk assessment process revolved around analyzing the level of risk exposure to determine the best way to mitigate them. SpendEdge’s process undertakes the best approach in risk management and focuses on helping food processing companies understand their impact. It is more of a collaborative process where supply chain risk assessment plans are developed to tackle the challenges of stakeholders who understand the risks and are best able to manage them.
Unattended supply chain risks tend to paralyze most supply chain operations. Hence, its right to conclude that it is essential for every organization to identify the key risk elements within their supply networks and keep them under close supervision. Successful businesses are those that are capable of managing such risks and restoring confidence throughout the global supply network. Nevertheless, if correctly done, by employing a suitable risk assessment process, the benefits are much more than mere cost reduction.
A must-read case study for procurement specialists and decision makers looking to develop an understanding of the food processing industry
A leading player in the food retail industry wanted to enhance their procurement strategies to overcome operational risks. The failure of their supply chain strategies had greatly impacted their revenue, as a result of which they wanted to implement a detailed supply chain risk assessment to gain a competitive advantage.
SpendEdge was approached by the retail industry client to leverage its expertise in risk assessment and develop an accurate risk mitigation strategy. The supply chain risk assessment engagement entailed a quantitative analysis of various supply chain categories to devise an exclusive risk management approach.
About the Client:
A leading multi-brand food retail major operating in the U.S., which recently made its way into the coveted top 10 listing of the world’s largest and most successful retailers.
The retail industry client was facing several challenges owing to their inefficient supply chain risk management strategies.
How did SpendEdge Help the Client?
- Step 1: Identifying the risk factors and estimating their impact on business operations
Supply chain risks deter businesses from achieving their organizational goals; hence, the first step in supply chain risk assessment deals with the identification and estimation of the impact of risk factors. By doing so, the food retail client was able to classify risks based on the severity of the impact.
- Step 2: Developing a suitable supply chain risk mitigation strategy
An effective risk mitigation strategy utilizes three resources namely – processes, people, and technology. Also, since each of these factors plays a key role in analyzing the gathered data, it’s imperative to establish an infrastructure that is dedicated to continuously gathering, interpreting, and acting on the gathered data.
- Step 3: Developing a precise risk assessment framework
To devise an effective supply chain risk assessment framework, it is essential to analyze the gathered data to identify risks and develop strategies to avoid mishaps. The developed risk assessment framework also helped them identify and manage both short and long-term supply chain risks.
Benefits of the Engagement:
The risk assessment experts at SpendEdge devised a three-step comprehensive approach that helped the food retail client to develop a precise risk assessment framework to enhance procurement efficiency.
Why is supply chain risk assessment essential in the retail industry?
One of the most demanding concerns facing retailers today revolves around supply chain disruptions and its associated impact on revenue, profit, and brand reputation. Moreover, financial crises, natural disasters, and changes in political stability across developing countries have highlighted vulnerabilities both for individual organizations and for industries. However, supply chain risks also include risks arising due to factors such as supply disruptions, transportation delays, embargos, and outsourced service failures.
The diversity in the retail risk environment demonstrates the importance of mitigating supply chain risks with an integrated risk assessment framework. This is exactly what the supply chain risk assessment experts at SpendEdge specialize in. Our industry-specific guidelines help clients to implement an accurate supply chain risk assessment framework to ensure that they meet the industry and framework standards.
Key questions answered in this supply chain risk assessment engagement include
SpendEdge’s supply chain risk assessment solutions are guided by the principles of supply market intelligence to help clients enhance their overall supply chain efficiency. In this risk assessment engagement, the three-step approach aided the retail industry client to integrate supply chain data from various sources to identify supply chain risks and implement appropriate risk mitigation strategies.
Our approach empowered the retail industry player to be more confident in their data so that they can quickly detect supply chain risks. Also, drawing conclusions on this engagement our experts suggest that it is imperative for every organization to identify the key elements of the supply chain that are at risk and keep them under close supervision.
While risks in the supply network tend to paralyze most supply chain operations. Successful businesses are the ones that efficiently manage such risks and reinstate confidence throughout the global supply network. Nevertheless, if rightly done, the benefits are much more than cost reduction.
To know more about our risk assessment solutions