Supply Chain Risk Management

How to manage risk in the supply chain

Supply chain risk management is a set of activities, aimed at reducing supply chain risks. It involves understanding the risks that can impact your organisation and implementing strategies to manage those risks. In the supply chain, this can be from the sourcing of raw materials to the distribution of the finished product. Helping your organisation prepare and offer a proactive approach to supply chain risk management can involve several things.

• Internal audit: This involves taking a deeper look at your organisation’s internal processes and controls.
• External audit: This involves looking at external members within the supply chain and can help mitigate poor quality, lead times and sustainability issues.
• Strong contingency planning: This involves preparing a plan in the event of an unknown risk that could impact the supply chain. Many organisations generate a risk register and identify their risk appetite.

5 ways to manage risk in the supply chain

Supply chain risk management can help you identify changes in supply chains and implement treatment plans to mitigate risks. Look below at a five-step process in managing risk in the supply chain.

What are the main risks facing a supply chain?

Risk is defined as a chance of something happening that will have an impact. However, there are many risks that your supply chain can face, from internal (Micro factors) to external (Macro factors). Here are just a few of the ones to consider.

• Global and local supply chains: Although global supply chains do have their benefits such as cost reductions and access to a more competitive market, they do have their risks too. For example, less control over suppliers, ethical behaviours, and logistics issues, particularly if you have last minute demand. Similarly, local supply chains also present risks, such as supplier dependency and increased costs.
• Breakdowns in equipment: A mechanical breakdown could result in production being halted, meaning a delay in deliveries to customers.
• People: If a key member of the team leaves, or is off work for a long period of time, this could affect the whole supply chain workflow, particularly if other members of the team are not able to step in.
• Demand: Demand can be unpredictable, which means you may not have the right amount of stock and materials.
• Cyber-threats: With many organisations reliant upon internet-enabled software to manage procurement and supply chains, it means your supply chain is susceptible to risk.
• Reputation risks: Unethical behaviour within your supply chain could put your organisation’s reputation at risk. Particularly if your supply chain is global, it’s important to make sure they adhere to your ethical policy and code of conduct.