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Understanding Supply Chain Risk Management

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Before we begin with “Supply Chain Risk Management” under SCM, try answering what does “Risk” mean to you in general?

Supply Chain Risk Management

We can explain risk as something resulting in an unfavorable outcome.

Precisely, Risk refers to an uncertain situation which is an unavoidable part of human life. Denis Waitley once expressed the same facts through a powerful quote given below.

“Life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing.”– Denis Waitley

Read it carefully and you will find an insightful meaning to it ..

If one cannot escape from Risk … Ideally, he should prepare for it.

The same goes for supply chain management … Supply chains are inherently risky, therefore we need to prepare for the risks involved.

“SCRM” prepares us for the risks and thereby helps us in reducing the after-effects through various supply chain risk mitigation strategies.

Supply Chain Risk Management (SCRM) Definition

Supply chain risk management (SCRM) is a set of activities aimed at reducing supply chain risks. These activities often include identifying supply chain risks, assessing the probabilities and the severity of impacts, prioritizing the risk event to be dealt with, and developing actions for mitigating risks or planning backup actions (Vanany et al., 2009).

What is Supply Chain Risk Management?

Supply Chain is a network of organizations that facilitates Procurement, Manufacturing, and Distribution activities in a simple sense.

These activities like every other activity face the challenges of unexpected events namely ‘risk’. Identifying, categorizing, and mitigating such risks helps in developing a highly reflexive supply chain.  

SCMR focuses on efficient management of supply chain risks by:

Identifying Risk It starts with identifying risks in the first place. The first phase of the risk management life-cycle is to establish a risk profile and then carry out active monitoring to keep it up to date

Assessment of Risks Understanding the impacts of a risk on your business is very important. Consequently, it is highly recommended to be aware of those partners who have a significant impact on sales, margins, or profit.  

Risk Mitigation Define both preventive action plans and reactive action plans.

Types of Supply Chain Risks

Some commonly observed Supply Chain Management risks are as follows:

Supply Chain Financial Risk

Supply chain financial risk occurs as a result of a disruption in financial stability on side of supplier like bankruptcy. Undoubtedly, Such business scenarios are a threat to supply chains. A financial risk event can occur as a result of a supplier bankruptcy, market volatility, and much more.

Supply Chain Reputation Risk

The reputation of any business faces the challenge arising out of any malpractices or activities in general leading to a downfall of Brand image. Often, it has to do with corporate social responsibility and compliance issues. Such reputation risks can result in damage to a large scale.

Supply Chain Natural Disaster Risk

Natural disasters can lead to a halt in the flow of activities. In other words, there is a high possibility of the supply chains facing disruption by hurricanes, earthquakes, or other natural hazards for that matter.

Natural risks are often unpredictable and therefore preparing for them is extremely tricky.  

Supply Chain Man-Made Risk

Supply chain man-made risk causes a disruption in the form of events like fires, explosions, or any damage-inducing incidents. In fact, this type of risk is often the result of a specific action or inaction taken by a person or group.  

Supply Chain Human behavior risk

Human elements form an essential block of Supply Chains. Any human behavior which leads to a Halt in supply chain activities can be grouped under human behavior risks.

Above all, such risks are the most difficult to assess. Sometimes, it may be the result of poor judgment or bad decisions eg: -Accidents involving machines in factories  

Supply Chain Geopolitical Risk  

The most obvious and high profiles are wars and revolutions, but even less dramatic can cause serious consequences for businesses. Moreover, globalization is leading to a higher level of Interdependency among different countries. Geopolitical risks often are a big challenge for supply chains. They can do a bigger level of damage than we could imagine.

Supply Chain Cyber Risk

Cyber supply chain risks affect supply chain continuity, sourcing, vendor management, quality, transportation, security, and many other functions within the Supply chain. Precisely such risks can also arise out of a poorly managed system on part of our suppliers.
Such risks are extremely harmful to the operations and therefore should be kept at bay.

Supply Chain Legal risks  

Legal risks or contractual risks are resulting from arguments or different interpretations of contractual obligations, or from any other breach of duties. Situations of patent infringement also fall under the category of a legal risk.

Importance of sCMR

Supply chain risk management is essential to fight against all the above-mentioned risks, therefore it is very important to have a set planned course of action, which is known as supply chain risk management.   Although, eliminating every risk is unrealistic and not possible but, the better our businesses are planned, the better we can solve these issues.  

Risk exists in every part of a supply chain operation and thus, it is important that risk management is infused into the entire organization from top to bottom too.    

Conclusion

 Supply chain risk management is gaining much importance and is being highly sought after in the prevailing pandemic situations.

Risk or risk management is a diverse and complex subject. One can find it in Medical, Electrical, Mechanical, and other similar fields. Supply Chains stays not an exception to it.

Businesses have understood the need for an efficient supply chain risk management strategies at the place.  

Going forward we will see our businesses prioritizing supply chain risk management.

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