05 Jan 2023

A Comprehensive Overview of Supply Chain Risk Management

An SCRM tool helps an organization comprehensively prepare for a supply chain risk, ensuring that supply chain operations from production to delivery remain disruption-proof.

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While the word Risk might give you the impressionist view of being adventurous & diving into a process without planning – a conglomerate can rarely leave the factor of risk on fate. If assessed poorly, unaccountability of risk can disrupt the conduct of business & its operation while leaving a trail of losses & unfulfilled assets.

To counter such daily & exceptional circumstances, companies employ SCRM, a.k.a. Supply Chain Risk Management. It helps a company identify, assess, and mitigate potential anomalies in its supply chain operations. Implementing a supply chain risk management tool benefits an establishment immensely in structuring an efficient workflow which subsequently aids in reducing costs and enhancing operation footprint.

In this write-up, we explain why having a Supply Chain Risk Management (SCRM) process is a boon for your organization’s revenue goals.

Table of Contents

What is Supply Chain Risk Management?

An organization’s supply chain involves planning, procurement, inventory, logistics, and delivery. Supply Chain Risk Management is simply an extension of overlooking these processes with risk management strategies and tools in place. When a company has a supply chain risk management service, it can mitigate any unwarranted issues and manage cohesiveness in operation amongst supply chain partners and stakeholders.

When an irregularity gets observed, SCRM software comes up with strategies to nullify its negative impact on a company’s supply chain process as it keeps the operational output of a corporation intact.

What is the Supply Chain Risk Management Process?

An efficient supply chain requires all its verticals right from sourcing to delivery, to work in tandem and always meet the target goals. This entire process includes various stakeholders who are required to be at the top of their game year in and year out. If any aspect of the supply chain fails to match its intended parameters, then a company employs SCRM best practices to minimize any potential loss in time, cost & assets.

There are four significant steps of a supply chain risk management tool.

Supply Chain Risk Management Lifecycle

Figure: Supply Chain Risk Management Lifecycle

Step 1 - Identifying the Risks: The first step involves identifying the reason behind a supply chain disrupted process. The cause could vary from a global economic repercussion to an unprecedented event like the pandemic. The principle modus operandi behind the identification of risk is to catalogue all the possible factors based on past data, observation of the current scenario & assessing its impact on the near future. While it may be pretty difficult to pinpoint how things will pan out in the future – it does help in maintaining the continuity of a supply chain process.

Step 2 - Compiling Risk Scores: There might be a case when your operations face more than one irregularity. In such scenarios, giving scores to your risks helps prioritize an action plan for aberrations in the supply chain that requires the most attention. Compiling risk scores is also a great way of categorizing risk factors for future scenarios.

Step 3 - Designing a Mitigation Strategy: After the data-based analytics, the next step involves constructing relevant risk mitigation strategies to undo any negative impact on the supply chain. The purpose of composing such risk-minimizing tactics is to inform all the stakeholders on how to respond when similar aberrations occur. These steps help a company keep its defenses intact whenever a supply chain exception arises.

Step 4 - Monitoring your SCRM Plan: The last step is continuously monitoring your SCRM plan. Your supply chain risk management process actively observes profiled risks & responds quickly to any unwarranted challenges. This ensures the company’s workflow remains uninterrupted from production to delivery.

What Are the Types of Supply Chain Risks?

Risk management in supply chain can be classified based on internal & external factors. While this is an ever-evolving topic, some risk factors are consequences of an unstable global economy, cyber-attacks, political upheaval & natural disasters.

To begin, let’s put focus on internal & external supply chain risks.

Internal Supply Chain Risks: An organization has more authority when controlling internal supply chain risks. Since these are internal factors, a company’s management needs to nullify this upheaval as soon as possible. Internal Supply Chain Risk is broadly defined into five categories.

  • Manufacturing risks: Any internal manufacturing processes not compliant with a company’s cost, time, or assets parameters are defined as Manufacturing risks.
  • Business Risks: Business risks can be caused due to changes in operational models, changes in personnel, or a disagreement between stakeholders.
  • Planning & Control Risk: Lack of proper planning & poor management leads to Planning & Control Risk.
  • Mitigation Risk: A lack of a contingency plan in the face of a supply chain challenge seeds mitigation risk.
  • Cultural Risk: Lack of transparency in the company’s process or concealing active information leads to Cultural Risk.

External Supply Chain Risks: These are factors beyond an organization’s direct control. Here, we list categories in which External Supply Chain Risks are classified.

  • Cyber Risks: We know the relevance of data in today’s society. And, since corporations rely on the latest technology for their day-to-day activities involving huge chunks of sensitive information – they risk exposing themselves to cyber fraud. Such possible scenarios make Cyber risk management policies essential in today’s data-centric world.
  • Demand Risk: An error in consumer forecasting leads to Demand risks. Assessing consumer demands is of utmost importance for a supply chain to remain scalable.
  • Supply Risk: Many stakeholders in a logistics process are outsourced, and if any partner faces challenges from procurement to delivery, it leads to Supply Risk.
  • Natural Risk: No contingency plan can account for a natural occurrence, namely an earthquake, severe climatic challenges, or even a pandemic. Humans rarely have any say in factors driven by natural causes.
  • Business Risk: Financial scenarios have the most significant say in how things turn out for an entire organization. An unstable market, operational taxes, and regional challenges are among a few reasons leading to business risk.
  • Compliance Risk: As the name suggests, if a company fails to account for governing body guidelines, it risks itself to be an interrupted supply chain process. An organization must ensure that it complies with every operational policy for a smooth proceeding.

What is Supply Chain Risk Management Strategies?

To forestall any future loss, companies deploy risk-mitigating techniques to minimize the impact of a disruption. Here are a few SCRM strategies globally deployed by conglomerates over the years.

  1. PPRR Risk Management StrategyPPRR, or Prevention, Preparedness, Response & Recovery module, is one of the most sought-after risk management strategies accepted across organizations. PPRR, in simple terms, means

    PreventionTaking pre-emptive measures to nullify supply chain disruption
    PreparednessTo be ready with an action plan in case of an emergency
    ResponseExecuting the action plan for a faster turnaround time
    RecoveryGetting things back to normalcy as soon as possible
  2. Upgrading Supply Chain Governance It is essential to have the Standard of Protocol & cyber security compliance known to all your stakeholders & partners. This helps in the uninterrupted functioning of the supply chain & averts any possible cyber-attacks on the company’s data reserve. With a governance system in place, a thorough background check of all potential vendors & carriers makes sure that a company has vetted partners to carry out their business.
  3. Consistently Monitoring Risk Keeping up with the latest technological trend ensures an organization’s steady workflow with safety & efficiency at the helm. Active investment in new-age security protocols keeps an institution's data asset free of malicious cyber intent.
  4. Centralizing Data A centralized data system helps a company with better accessibility & security setup, which also proves beneficial when using data for analytical purposes. A centric data warehouse enables a firm to be scalable while keeping up with the ever-changing landscape of demand forecasting.

What Are the Benefits of Supply Chain Risk Management?

When looking for continuity in business, investing in the supply chain risk management process is the way to go. It keeps the supply chain sustainable and also makes sure that your firm & all of its dependent stakeholders are primed to tackle any unforeseen challenges, natural or manufactured.

Here’s why having an SCRM solution will prove beneficial to you.

  • It results in improved output. Right from procurement to production to delivery.
  • Ensuring compliance with regulations.
  • Increase in customer retention.
  • A reliable process to withstand any future supply chain anomaly.
  • It contributes to an enhanced brand image.
  • Edging out the competition in the industry.

Supply Chain Risk Management with 3SC

3SC offers full-scale Supply Chain Risk Management Solutions, nullifying any possible future disruption an organization may face. Our comprehensive platform, SCAI, builds on the power of data analytics & offers risk-mitigating strategies which enable companies to take pre-emptive measures in the likelihood of a market anomaly. 3SC ecosystem ensures that your organization always maintains sustainable supply chain operations while upping the credentials of your brand value.

Contact us to know how 3SC’s SCRM solutions can help you build a reliable process while keeping your growth steady.

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