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TradeBeyond Blog
November 4, 2021

Supply Chain Risk Management: An Essential Guide

Tablet to track supplier risk management

Supply chain risk management, also known as SCRM, refers to an approach to management for all kinds of risk, all tiers of supply, and all risk objects, including ports, locations, suppliers, and more. In addition, it refers to the process of taking the required steps to identify, assess, and reduce the risks of an organization’s supply chain.

Supply chain risk management is a critical enabler integrated and embedded into an organization or enterprise’s core processes when done well.

Implementing the right supply chain risk management strategies can help an organization to operate more efficiently, decrease costs, and improve customer service.

During this guide, we will discuss everything you need to know about:

  • Supply chain risk assessment
  • Supply chain risk mitigation
  • Supply chain risk management plan
  • The supply chain risk management process
  • Supply chain risk analysis
  • And more

Common Supply Chain Risks

What is supply chain risk? According to the supply chain risk definition, risk management in supply chains is how retailers take steps to assess, identify and mitigate risks within their supply chain.

There are several different types of typical supply chain risks, including both internal and external threats. The factors listed below should be kept top-of-mind when performing a supply chain risk analysis.

Internal

Internal supply chain risks include any supply chain risk factors in your organization’s control.

These can be identified and monitored using supply chain risk assessment software, vital analytics programs, and IoT capabilities. Here are some of the internal supply chain risks:

  • Manufacturing risks. Manufacturing risks refer to the possibility that a critical part or step in your workflow can be disrupted and cause your operations to go off their intended schedule.
  • Business risks. Business risks result from disruptions to standard personnel, reporting, management, and other crucial business processes.
  • Planning and control risks. Planning and control risks are a product of inaccurate assessments and forecasting and poorly planned management and production.
  • Mitigation and contingency risks. Without a supply chain risk mitigation plan in place, a business runs the risk of supply chain disruption.

External

External supply chain risks refer to global supply chain risks that come from outside of your organization. These supply chain risks are typically more challenging to predict and require more resources to overcome. Some of the external supply chain risks include:

  • Demand risks. Demand risks happen when you don’t calculate product demand correctly. These risks are usually the product of a lack of insight into year-over-year purchasing trends or unpredictable markets.
  • Supply risks. Supply risks happen when the raw materials your business relies on are not delivered promptly or at all. This can cause some disruption to the flow of components, materials, or products.
  • Environmental risks. Environmental risks in the supply chain are directly caused by environmental, governmental, political, or social-economic problems that impact the timing of any part of the supply chain.
  • Business risks. Business risks can happen when unexpected changes occur with one of the entities or organizations you need to keep your supply chain running smoothly. This can include the sale or purchase of a supplier company.

How Supply Chain Risk Management Works

But how does supply chain risk management work? There are three key steps involved in the supply chain risk management process, including:

  • Risk identification. The best way to address supply chain risks is to ensure that you identify the risks first. The first phase of supply chain risk management is risk identification, which means establishing a risk profile and monitoring the risks actively to keep it up to date.
  • Risk assessment. It’s also crucial to understand what impact a risk event can have on your business. You should always be aware of partners that can significantly affect your profit, sales, or margins.
  • Risk mitigation. Risk mitigation is all about defining your action plans, including preventative and reactive plans. A supply chain risk management plan can provide a basis for addressing supply chain risks with the proper measures to protect your brand and secure your supply.

Supply Chain Risk Management Strategies

Supply chain risk mitigation can be difficult because of globalization and possible cyber interference. However, there are specific measures you can take to limit your business’ exposure to supply chain risks:

  • Leverage the PPRR risk management model. The PPRR risk management model is a typical supply chain risk management technique that stands for prevention, preparedness, response, and recovery.

    Prevention refers to taking preventive measures for supply chain risk mitigation, while preparedness means creating and implementing a contingency plan in case of an emergency.

    Response refers to executing your contingency plan to decrease the disruptive event’s effect, while recovery means resuming operations and getting things running normally as quickly as possible.
  • Manage environmental risk in your supply chain. There’s no natural way to prevent ecological supply chain risk, but you can plan it with supply chain risk assessment software.

    This software allows you to take a more proactive approach to risk management by offering better visibility into your supply chain structure.

    With this solution, you can identify any weak points in your supply chain and receive insights, based on data, into how you can strengthen your supply chain.
  • Improve your cyber supply chain risk management. The Internet of Things and other digital technologies can play a huge role in optimizing supply chain operations. Still, they can also leave organizations exposed to cybersecurity threats like hacking, malware, phishing, and ransomware.

    Environmental risks can make these vulnerabilities even worse. That’s why it’s crucial to implement cyber supply chain risk management strategies. These strategies could include establishing compliance standards for third-party vendors, defining user roles, and implementing security controls to restrict who can access your system.

You’ll need software solutions that give you total visibility into your supply chain, establish backup controls to safeguard your data backups, regularly update your company’s anti-virus, anti-spyware, firewall software solutions, and more.

  • Gain visibility into suppliers’ financial stability. There are specific credit rating agencies that provide predictive financial stability reporting on thousands of possible suppliers to decrease the external business risk of dealing with third-party vendors.

    This can help you create better business relationships and decrease your supply chain risk vulnerability.
  • Track the right freight carrier metrics. It’s also important to partner with a freight carrier that can show you consistent results. We recommend using freight carrier metrics when evaluating new freight carriers to support supply chain risk management, including transit time, the number of stops, average stop time, average loading time, route optimization, and maintenance schedule.

    Transit time refers to the number of hours or days it takes for a shipment to come to a customer’s location after leaving a facility. The average loading time refers to the amount of time it takes to load a carrier with freight after it has arrived at the loading dock.
  • Create a logistics contingency plan. It’s also crucial that retailers have logistics contingency plans to ensure that there is business continuity in the case of supply chain disruption.

    We recommend the following tips when developing a contingency plan for supply chain risk mitigation. Map out your supply chain to gain a better understanding of which entities are vulnerable to risk.

    Perform a whole assessment of suppliers based on factors like economic, political, and geographic risk, diversify your supplier network so that you don’t rely on a single supplier, and audit logistics providers based on their disaster plans.

    You should also establish a crisis response team to develop decisions in case of an emergency and create solid communications channels so that your employees know their responsibilities in the case of supply chain disruption.
  • Conduct internal risk awareness training. We recommend developing a risk-aware culture at your organization by conducting risk awareness training for your whole workforce to get buy-in at every level of your company.

    Your training curriculum should include risk management best practices, common supply chain management risks and challenges, supply chain risk assessment software training to encourage end-user adoption, and computer and internet best practices to increase cybersecurity awareness.
  • Consistently monitor risk. We also suggest continually monitoring supply chain risk factors to protect retail operations fully.

    Most organizations assume that they are secure once they have created and implemented a supply chain risk mitigation framework. Still, every level of your supply chain must be observed as carefully as possible to spot any potential risk indicators.

    The best way to consistently monitor risk is to invest in a scalable digital retail solution that automates your risk monitoring for all parts of your supply chain.

    This software will offer you security and peace of mind, as well as essential data and insights into how you can better streamline your business operations.
  • Use data to model critical risk event scenarios. Data science and predictive analytics have been used to develop advanced models for possible risk event scenarios.

    You can use these data models to determine what could happen during worst-case scenarios and create comprehensive contingency plans that will prepare your organization for and when disasters happen.
  • Consolidate data for easy access. If you store business data in multiple systems, you might have too many solutions in your software ecosystem.

    We recommend making it easier to leverage data science, predictive analytics, and data modeling by investing in a full-scale solution that keeps your data in one single, centralized, and well-organized place.

If you want to learn more about supply chain risk management, look no further than Trade Beyond. We have procurement solutions that transform the way retailers and suppliers collaborate. From the planning stage to the point of purchase, our software simplifies sourcing, improves communication, enhances connections with buyers, and so much more. 

Contact us today to see what we can do for you!