Managing business risk is one of the most important things companies do when it comes to supply chains. Being on top of the potential risk factors and how they might impact your organization is key to a systematic process to reduce business risk. While an efficient supply chain can maximize profitability, risk assessment, risk identification, and analysis of potential disruptions can help you take proactive measures to mitigate problems before they impact your bottom line.
Supply chain risk management requires paying attention to both your upstream and downstream supply chain. Your upstream supply chain includes the raw materials, procurement, transportation, and manufacturing of goods. The downstream supply chain incorporates your warehousing, distribution, marketing and sales, and customer service. Disruption to either upstream or downstream supply chains has a broad potential impact on your business and increases your potential risks.
Why Supply Chain Risk Management Is Crucial
Supply chain risk management is crucial in avoiding losses. Not only does it help with risk identification, but it also helps find inefficiencies in your supply chain that could threaten business continuity. For example, a risk assessment might identify a single supplier for a key component. If that supplier is unavailable for some reason, it can have a significant impact. Likewise, if their delivery times become extended, it can hurt your ability to deliver to your customers on time.
By detecting risk — and potential bottlenecks — earlier in the process, you can adjust your supply chain mix to overcome potential issues. Supply chain risk assessments give you actionable information to protect your business.
The Most Powerful Supply Chain Risk Mitigation Strategies
If we’ve learned anything over the past few years, it’s the importance of a resilient supply chain. According to McKinsey, companies building resiliency into their supply chains see significant benefits. For example, supply chain leaders who increase their end-to-end visibility were twice as likely to avoid supply chain challenges among their peers. Those implementing scenario planning, such as predictive analytics, for earlier identification were 2X better at avoiding disruptions.
While companies have made improvements to their supply chain practices, most organizations still have significant work to do. Here are some of the key ways to mitigate supply chain risks.
1. Implement Robust Risk Management Protocols
To effectively manage supply chain risks, companies need to put in place systematic processes to identify, assess, and monitor potential disruptions. This supply chain risk management process includes conducting regular supplier risk assessments, mapping supply networks to pinpoint critical failure points, and using data analytics to predict areas of emerging risk.
Such protocols evaluate exposure for remediation and improvements.
2. Develop Contingency Plans for Supply Chain Disruptions
While supply chain activity has normalized for most operations, significant risks remain. Labor actions and rising costs, environmental regulations, and industrial policies are just a few top-line items.
Organizations need a comprehensive supply chain risk management plan that includes a review of likely scenarios. The best time to formulate a response to a problem is before it happens rather than having to make significant decisions under time pressure.
Contingency plans should outline specific scenarios, such as a supplier failure or distribution center labor shutdown, detailing step-by-step response procedures. Such a plan enables rapid mobilization of backup suppliers, prioritization of customers, and activation of business continuity plans to overcome disruptions.
3. Leverage Technology for Risk Monitoring
A KPMG survey reported that 50% of supply chain organizations will invest in artificial intelligence and advanced analytics capabilities through 2024.
Evaluating potential suppliers and monitoring supplier performance will be key steps in building a more resilient supply chain. This is crucial as more than half of organizations today report having limited or no visibility into their tier-one suppliers. Supply chain risk management software can help provide this insight for better risk management strategies.
Leading organizations are also paying greater attention to cyber supply chain risk management as well. Supply chain cyber attacks are increasing in frequency. A report from Boston Consulting Group reveals that a shocking 98% of companies that saw negative impacts from a cybersecurity breach attributed the breach to their supply chain. These third-party breaches resulted in an average remediation cost of 4.5% million.
4. Enhance Your Supplier Relationship Management
Suppliers are critical risk management partners. Your supply chain risk management policy should include enhancement of your relationships to work collaboratively with suppliers on risk mitigation and continuity planning.
This includes activities like conducting joint business continuity exercises, implementing transparency and data-sharing initiatives, and providing incentives for suppliers to meet risk management expectations.
5. Continuously Improve Your Supply Chain Risk Management Program
Risk management in supply chain must be a continuous process.
Leading companies review their risk management protocols regularly and perform “stress tests” to find weak points. By benchmarking performance against best practices, analyzing lessons learned from past disruptions, and updating their supply chain risk management program regularly, organizations can stay on top of emerging trends.
The right supply chain risk management tools can help you track the key performance indicators (KPIs) to manage your business efficiently. This provides the insight you need to manage your business efficiently and identify areas for improvement across your entire supply chain.
Future-Proof Your Supply Chain Operations
Supply chain disruptions are common. One study showed that there were 8,917 supply chain disruptions in just the first half of 2023. If these disruptions impact your company, it can be devastating — especially if they happen at the wrong time. Disruptions can impact your inventory and profitability, and damage customer relationships
You simply cannot afford to leave the quality and resiliency of your supply chain to chance.
You need a comprehensive supply chain risk management strategy to identify areas for improvement to decrease your level of risk.
Surgere solves supply chain visibility challenges to provide a single source of truth. With Surgere’s Interius software, you can implement real-time tracking across your IoT supply chain assets. IoT sensors can track critical supply chain data with 99.9% data accuracy so you have complete visibility into your inventory.
Learn how Surgere can help your organization reduce supply chain risk.
