Managing risk in your supply chain
Filed Under Blog
One of the common things you might do if you work in the supply chain function is to assess risk.
Risk is defined as “A possibility or threat of damage, injury, liability, loss or negative occurrence that is caused by external or internal vulnerabilities”
While risk management is a term that’s often associated with Project Management it’s vital that those working in an organizations Supply Chain are also aware of the process.
Examples of Supply Chain risks
Here’s 5 common supply chain risks
• Critical vendor suddenly goes out of business
• Raw Material suddenly becomes unavailable
• Demand plan proves vastly incorrect
• Unable to access key Logistics routes
• Recall notice given by distributor of critical component
It’s also worth pointing out that risks may not just be close to home. As Supply Chains become ever more global these risks can extend geographical boundaries.
Supply Chain Risk Management
Sometimes called SCRM (Supply chain Risk Management) the key objective of the process is to reduce vulnerability. Risks may not go-away but at least you’ll be aware of how you’ll monitor and control them.
Types of supply chain risk
Risks can be either everyday (a component becomes difficult to obtain) or exceptional (a boat carrying product sinks) but however threatened your organization is it’ll need resource and a process to manage risk.
Typically there are 2 main risks, External and Internal
External risks might include
• Customer demand variability
• Environmental risks
• Supply risks
• Equipment risks
Internal risks might include
• Planning risks
• Manufacturing risks
• Business risks
Risk management is a well established path and there’s a multitude of online resources to help if your looking to establish your process (note Risk management is not just an excel sheet).
The typical process will involve 5 key steps.
1/ Identifying the risk
2/ Analyze the risk
3/Assess and evaluate the risk
4/ Take action to control the risk
5/ Review and control the risk
The process will usually involve resources from various functions within your business and often key stakeholders from outside.
Control processes usually include periodic meetings where the team will review a risk register (a list that captures risks) and reviews these risks to ensure mitigation / control is appropriate whilst also adding new risks that have emerged since the last review.
Summary
Whether you like it or not risk management is something that is key to your supply chain. Ignore it at your peril!