By Jared Ezzell
Supply chain risk management is becoming even more pivotal, with natural disasters and cybersecurity threats increasing in a society where globalization makes our supply chains interconnected. The impact of this is most recently evidenced by the pandemic and the Ukraine / Russia conflicts.
Having the right risk analysis programs in place and executing them with care and knowledge supports supply chain risk management, as it helps catch risk straight away and means you’re fully equipped for most eventualities.
In this article, we’ll explain how you can manage your supply chain risk processes throughout the supply chain by using the most effective strategies, data, and tools. By doing so, you can increase your supply chain resilience.
How Supply Chain Risk Management Protects Your Company
By using supply chain risk management (SCRM) and risk identification during your vendor onboarding / monitoring / audits, you can better evaluate your risk factors, including demand risks, financial risks, compliance risk, and ESG risks, you can decrease your company’s vulnerabilities. The key is identifying those risks early so you can respond appropriately.
During risk assessment, you can identify and respond to potential threats to your company. For example, if you discover in your risk assessment that a vendor is going through liquidation, working with them is a risk. They probably won’t be able to provide the supplies that you need and they may not be able to pay you back for any losses. You can mitigate this risk by finding a more reliable company to work with instead or ensuring proper financial controls are in place if no / limited other options.
Having the right strategies for assessing and managing risks doesn’t just protect your company. It elevates your competitive advantage in the market. Adopting streamlined, successful mitigation strategies can attract valuable suppliers and create long-lasting supplier relationships which can be an asset to your company. Effective supply chain management can help minimize supply chain disruptions, which subsequently increases your profitability and overall success as a business.
It limits the possibilities of system failures, data breaches, reputational damage, non-compliance issues, and exposure to financial risk that could jeopardize business continuity.
Supply Chain Risk Management Strategies that Enhance Your Coordination
It’s one thing to understand supply chain risk management. For proper execution, you need to have full team participation and a centralized technology solution. Here are a few tips to improve your supply chain risk strategies:
Educate Your Entire Team
Of course, your procurement team should thoroughly understand supply chain risk management, and your team resources should live in a central place to ensure consistent, clear risk responses. But how about stakeholders across your departments? Risk management can become a part of the company culture, enhancing your ability to spot and swiftly respond to your risk landscape.
Host regular seminars on how risk management affects daily operations, or make a team handbook on risk management part of onboarding new team members. Give updates during team meetings about political, governmental, or environmental news that is likely to raise risk levels. You can even ask your team to gain a Chartered Enterprise Risk Analyst (CERA) credential, ABAC certification, or similar. There are many reliable educational resources online, including webinars and case studies.
Use a Central Platform to Monitor and Respond to Risk Events
As you know, your supply chain risk management program lasts through your vendor lifecycle. It starts early on at the point of supplier discovery and continues through supplier onboarding and ongoing monitoring for those approved active suppliers. During the onboarding journey is when you have the opportunity to gain information (and supporting documents) that help you most optimally assess the potential risks of working with them.
For example, having the company incorporation documents and knowing the ultimate beneficial owner can help you identify if the suppliers are in politically unstable or high corruption risk regions, if your suppliers’ ESG metrics are below acceptable levels, or whether they have ownership by someone that is legally sanctioned.
All this information should live in a central software solution where your team can easily view assessment documents and supplier risk scores. A central platform ensures more team members can monitor and manage your risk exposure as you learn of external risks, such as a natural disaster, a supplier being purchased by another company, or a vendor in severe financial trouble. It can also provide automated notifications about new risks and workflows including how to respond per your policies / procedures.
The more organized your team, and the clearer your processes, the faster you can respond to risks.
Tools for Monitoring and Mitigating Supplier Risks
As you use a central solution for supply chain risk management, we suggest using these tools in your processes. Doing so can reduce mistakes and ensure accurate risk monitoring.
Risk Scoring System
Using software that automates risk scoring to save valuable employee time and limit human errors that can potentially expose risk to your business. This then makes it easy to act quickly to address the risk.
Automatic Notification Alerts
Again, receiving real-time updates regarding external factors affecting your global supply chain’s risk exposure, such as environmental changes, disasters, or scandals that your suppliers are involved in, will help to monitor and manage risk.
You can use risk management software as a tool to get these instant updates about your suppliers. They do this by collating information from reliable media / government sources and flagging important information that can affect your business..
Supply chains are particularly vulnerable to cybersecurity risks. It’s important to protect yourself from this threat more now than ever. Greater opportunities are available to hackers and fraudsters since everything is now digital and online. Cyberattacks can cause massive financial damage, so it’s vital to manage this risk. Use integrated cybersecurity solutions /software / data in your centralized solution to gain more protection and ensure optimal information security controls.