Even if you have a resilient risk management strategy in place, situations can arise that are out of your control. On the bright side, supply chain risk management provides the opportunity to differentiate and gain a competitive advantage. Advantages may include quicker crisis response time, adherence to regulatory requirements and ethical compliance, ensured internal quality standards and avoidance of sales shortfalls and image damage. If Supply Chain Risk Management (SCRM) is an interesting topic for you, I invite you to read the following recipe that not only outlines the single ingredients needed for a comprehensive supply chain risk management process, but also highlights how you can integrate SCRM within your organization.
Ingredient 1: Selection of Relevant Supply Chains
First, define which supply chains to focus on and to include in SCRM. In principle, one of two approaches can be used: 1) monitor all supply chains or 2) monitor a very specific section of the supply chain. The following parameters can be used and taken into consideration for specifying which to select: impact on sales/image, region, customer specification, purchasing volume, regulatory requirements, etc.
Ingredient 2: Definition of Risk Inventory
Typically, the risk inventory is recorded in a risk scorecard. This scorecard includes all individual risks and indicators, which act as sensors for detecting risk changes: supplier risk (e.g., insolvency, CSR compliance), location risk (e.g., natural hazards, strikes) and country risk (e.g., political or macro-economic).
Ingredient 3: Supply Chain Visibility
Approximately 51% of all supply disruptions originate below the tier 1 supplier. It is therefore important to capture the 1st tier of the supply chain structure and the supply chain substructures including 1-n tier suppliers and supply paths.
Ingredient 4: Risk Identification
Information from a large number of world-class databases is necessary for both an initial assessment of latent supply chain risks as well as real-time risks happening around the world. You also need to ensure relevant, dependable and comprehensive data, timely delivery of this data, in addition to accessibility and automation of the data via an early warning system.
Ingredient 5: Impact Assessment
For risk events it is necessary to know the criticality of the supply chains affected. In many cases, determining category-specific criticality is crucial. The category details scrutinized in the impact assessment allow organizations to initiate suitable and focused action plans.
Ingredient 6: Risk-Minimizing Measures
Interpreting current threats and their impact provides the necessary foundation in order to determine which action plans should be taken. Here it is important to differentiate between reactive measures for minimizing the impact in the case of unavoidable risk, and preventive measures for precautionary risk avoidance and reduction.
Ingredient 7: Integration with Procurement Processes
Supply chain risk management processes can not only benefit from other procurement procedures, they can also support them. Involvement in the following procurement processes may include sourcing, supplier assessment and qualification, supplier dashboards and supplier audits. Bon appétit! Hungry for more? Download our whitepaper to find out the remaining ingredients.
Heiko Schwarz is a founder and managing director of riskmethods, and is responsible for Sales, Marketing and Business Development. Heiko has been working in the software business for 13 years, with 11 years in different areas of the strategic purchasing market. As a sales expert and insider in the area of supplier management and risk management, he was most recently employed by IBM/Emptoris, where he was responsible for global sales and know-how transfer of the Supplier Management product line. With his business partner Rolf Zimmer, Heiko had the idea of an innovative SaaS solution for comprehensive Supply Chain Risk Management and founded riskmethods in 2013.