Supply Chain Risk Management
Posted: January 4th, 2023
Supply Chain Risk Management
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Table of Contents
Possible Risks in Supply Chain. 4
Supply Chain Risk Management
Introduction
Companies that run an extensive supply chain have to adopt a supply chain risk management (SCRM) approach that is more than simply an advantage to the firm. The chief purpose of SCRM is to prevent constraints and alleviate loss if risks interfere with the supply chain practices. Business leaders and the teams in charge of the supply chain should first understand the facets of SCRM before evaluating the risks that could affect operations. Companies should be conversant with the various methods of managing supply chain risks such as applying a four-phased approach that offers guidance on how to mitigate threats by using the time to recover (TTR) technique, and applying the potential risk treatments. SCRM tools and practices require considerable resources to implement, which makes it necessary to choose the ones the company can execute without much difficulty. Implementing risk mitigation makes it possible for the company to achieve efficiency in the supply chain process and allows the firm to enjoy a competitive advantage.
SCRM entails implementing strategies to handle both exceptional and everyday risks along the supply chain, depending on continuous risk evaluation to lower vulnerability and encourage continuity. SCRM applies risk management processes and tools to identify, assess, mitigate, and monitor factors in the micro and macro environments that could affect the supply chain (Ho, Zheng, Yildiz & Talluri, 2015, p. 5). SCRM lowers vulnerabilities in the supply chain through a coordinated, holistic approach while including all partners of the supply chain to identify and analyze the risks of weak areas within the supply chain (Ho, Zheng, Yildiz & Talluri, 2015, p. 5). These risk management approaches permit the firm to outperform its competitors and improve market share when a common threat surfaces. It is also possible to build a relationship and trust with all stakeholders.
SCRM benefits the supply chain and the business in several ways. The approach ensures deliveries and production function well and prevents profit losses by identifying risks early enough. The method offers an ability to react quickly to unexpected events and to come up with solutions to mitigate the situation (Shahbaz, Rasi, Bin Ahmad, & Rehman, 2017, p. 9236). Applying SCRM gives the SC team members the chance to protect the corporation’s image, and maintains and boosts buyer satisfaction. More fundamentally, SCRM enables management to identify the source of risks, assess the probability of risks, and offer a suitable solution to reduce the effects of risks (Shahbaz et al., 2017, p. 9236). By ensuring potential risks are detected early, SCRM not only helps to prevent potential crisis but also offers a chance to plan ahead helping the company tackle risks as they arise thereby ensuring that operations continue running without disruptions. An accrued benefit of implementing SCRM is optimizing functions in all areas, leading to a culture of best practices in all areas. A good example is the ability to avoid or minimize wastage of materials and other resources, which in the end optimizes the company’s profitability. SCRM has other benefits that should encourage corporations to employ the strategy, such as flexibility that can be implemented effectively in various fields (Shahbaz et al., 2017, p. 9236) and gaining competitive advantage (Prakash, Soni, Rathore, 2017). The advantages of applying SCRM should encourage corporations to use the approach that is increasingly easier to apply.
Possible Risks in the Supply Chain
Running a supply chain exposes a company to several risks associated with the process. Corporations should change the way in which they manage risks because risks could occur from internal and external factors such as acts of war and labor interferences (Davarzani, Farahani, & Rahmandad, 2016, p. 6). Risks in a supply chain can exist anywhere, which makes it almost unavoidable, and all companies should accept the inevitable fact that they will at some stage have to deal with threats. Economic sanctions, for example, could affect the supply chain when companies cannot do business with partners in countries that have been sanctioned (Davarzani et al., 2016, p. 5). Corporations should guard against risks that could occur due to political change because the instability in a country could significantly influence global trade. Considering the various sources of risks may help a company to implement measures that address these challenges. As an essential part of SCRM therefore, the process should incorporate defining the various categories of risk sources in the supply chain. Examples include delivery risk, financial, product or service quality, and company reputation.
Identifying and dealing with risk is important in managing issues that could interfere with the supply chain. A government, for example, may choose to increase taxation for exported or imported commodities, as is happening now between the U.S. and China (Jain & Saraswat, 2019, p. 2; Kashyap & Bothra, 2019, p. 3). Another factor that could cause considerable harm to the supply chain is economic instability. The declaration of the bankruptcy of Hanjin Shipping, which is the seventh-largest logistics firm in South Korea, prompted a significant drop in international supply chain shipping capacity. Adverse weather patterns and events present one of the most severe risks to ocean and road freight in the world. Floods and tropical storms can hinder transportation on land and water, which sometimes force transporters to use alternative routes. Catastrophes such as hurricanes, terror attacks, and earthquakes may also affect the supply chain (Davarzani et al., 2016, p. 6). Some of the disasters that could disrupt the supply chain include earthquakes, violence, and even the outbreak of disease, such as the case of the Coronavirus in China. Identifying and addressing the issues by using the appropriate methods allow for secure handling of the problems, and increase the possibility of a successful supply chain practice.
Corporations need to consider suitable ways of carrying out SCRM to prevent losses that could harm the company’s performance. Companies can use a combination of structured digital and problem-solving tools to appropriately handle the high-risk areas through four significant steps. The initial phase is to recognize and document the risks (Marija, Ivan, & Dusan, 2015, p. 175). The team in charge of the process can begin by mapping out and assessing the value chains of all the company’s leading products. The operators, in this case, should proceed to evaluate each aspect of the supply chain such as assets, risk source, and vulnerabilities to understand the risks that could affect their functionality (Marija et al., 2015, p. 176). The officers should proceed to enter the risks on a register and track them daily. The second step would be to formulate a risk analysis structure in which each risk in the record is evaluated depending on three aspects to develop an integrated risk-management structure (Marija et al., 2015, p. 177). The three dimensions include the possible sources and causes of risks, effects on the company if the uncertainties materialize, and the probability that those unwanted results can occur (Marija et al., 2015, p. 177). The SRM team, in this case, should design and apply a consistent scoring approach to evaluate all risks to allow for aggregation, and prioritize threats to recognize the products with the highest possibility of failure.
Addressing the third and fourth aspects of SCRM is equally essential in addressing the risks that could affect the risk management process. Monitoring the risks is necessary, and once the group establishes a risk-management approach, they should proceed with the constant evaluation of all risks (Marija et al., 2015, p. 178). Technology offers companies an excellent opportunity to track the leading indicators of risk. Practical monitoring approaches can be customized to meet the company’s needs. Hence, while one company could track disruptions in the manufacturing lines to identify quality problems, another may keep update with real-time weather reports to know how climatic conditions could disrupt its activities. It is essential, to have a system that offers timely warnings and track significant risks to increase the chance of evading or limiting the effects if they emerge. The fourth step would be to treat the risk by enforcing proper governance and perform a regular review to eradicate any instance of a recurrence. The intervening team can settle on one or more approach to modifypossible risks, and execute the options( Marija et al., 2015, p. 179). Companies should know that an appropriate supply-chain risk management leadership structure is a functional risk board that includes personnel who represent all aspects of the supply chain. The board should convene quite often to assess the leading chances in the supply chain and suggest mitigating strategies. The team in charge of supply chain will then take over implementation of intervening actions for their respective operational areas (de Oliveira, Espindola, & Marins, 2018, p. 685). Additionally, the board can make recommendations to advance the resilience of the supply chain, ranging from restructuring the supply chain, working closely with suppliers to improve their practices, and identifying new ways of regulating lead times. The team in charge of implementing the four-phased approach should consider all facets to avoid setbacks that could impede proper application of business strategies and magnify risks.
Companies can further deal with risks that may affect the supply chain process by applying different approaches that are equally effective. A suitable method is time to recover (TTR) that is a calculation of the time necessary for a corporation to restore all of its activities and output following a significant disruption in the supply chain (National Institute of Standards and Technology, 2019, p. 7). The supply chain leaders should strive to improve the efficiency of the people required for production as well as focus on replenishing the inventory. Focus on this area is essential because replacing some equipment could have lead-times that extend to more than a year. The risk management team should plan to recover as fast as possible following a disruption to avoid further harming operations.
Once the identification and assessment processes are complete, it may be necessary to consider four aspects that serve crucial roles in mitigating further risks. The company may embrace risk avoidance approaches, which entail not engaging in activities that could worsen the risks (Asadi, 2015 p. 99). While its common practice for companies to single-source all contracts to one supplier, a more risk averse approach would be to strategically award contracts to different suppliers hence ensuring continued operations even in the event of failure of one supplier. The company, for example, may avoid interacting or working with suppliers who are not reliable, or who offer substandard goods as a way of avoiding the risks associated with working with such people. The company may also practice risk avoidance by avoiding some forms of transportation if they present considerable risks. The firm, for example, may eschew transporting goods by road during a flood or by air when the weather is not favorable.
Applying potential threat treatment requires that companies consider other components that would help to evade supply chain risks. Using risk reduction may lower the severity of the loss or the probability of the damage from emerging (Asadi, 2015 p. 99). The organization, for example, may install water sprinklers inside the warehouse to minimize the risk of loss by fire. Technology again offers suitable software to reduce risk and break away from the traditional approaches that were less reliable and ineffective. The company may also mitigate threat by embracing risk-sharing strategies, which entail sharing with other groups or parties the effects of loss from risk. Risk-sharing, may include sharing loss between the supplier and the company in case of any breakages or damage during transportation. Organizations can also mitigate supply chain risks by practicing risk retention, where the company accepts the benefit of gain or loss from a recent risk. Companies that use risk retention may acquire insurance for some of the valuable assets that facilitate supply chain processes such as trucks, ships, buildings, airplanes, and other costly infrastructure. The body in charge of SCRM should concentrate when implementing the potential threat treatment to incorporate all essential aspects.
The study illustrates that embracing proper SCRM approaches help to identify and address some of the s risks that could affect the supply chain process. Companies, while conducting their supply chain operations, should remember that risks can occur from many areas, which requires vigilance and preparedness to manage. The SCM leaders should know how political factors, economic downturns, severe weather events, catastrophes, cyber attacks, data quality and integrity, and supplier inconsistency could affect the process. Corporations that desire to improve their SCRM should consider employing a four-phased framework that entails identifying and documenting the risks, creating a supply-chain risk management structure, monitoring the risks, and instituting governance and regular reviews. Companies may also apply the TTR strategy that calls for quick recovery after a significant disruption in the supply chain. Correctly using SCRM is likely to yield many benefits to the company, including the ability to respond to unforeseen situations, protecting the company’s image, and achieving competitive advantage. Implementers should be cautious when applying the various techniques to avoid errors that could prevent the desired objectives in mitigating risks from being realized. Business leaders, particularly supply chain managers, should borrow essential tips from the study to improve the way in which they manage risks that could affect the effectiveness of the supply chain.
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