What is Supply Chain Risk Management?

Published December 11, 2019 • 2 min read

Supply chain risk management (SCRM) is the process of taking the necessary steps to identify, assess, and mitigate the risks of an organization’s supply chain. Implementing global supply chain risk management strategies can help an enterprise operate more efficiently, reduce costs, and enhance customer service.

Supply chain management refers to how organizations manage the flow of their goods, including all the processes that are involved in transforming raw materials into finished products. It includes the planning and management of the activities around sourcing, procurement, and conversion, as well as all of the logistics management functions.

One of the main reasons companies implement global supply chain management strategies is to boost their competitive advantage. However, the benefits of extending supply chains can increase the risk of quality, safety, business continuity, reputation, and more.

Every company in every industry is exposed to internal and external risks from supply chain disruption. 

Internal supply chain risks include those caused by:

  • Disruptions of internal operations
  • Changes in key management, personnel, and business processes
  • Not putting contingencies in place in case something goes wrong
  • Not implementing proper cybersecurity policies and controls to protect against hackers and data breaches
  • Not complying with environmental regulations or labor laws
  • Not having the goods to meet customers’ needs.

External supply chain risks include those caused by:

  • Unpredictable or misunderstood customer demand
  • Interruptions to the flow of products, including raw materials, parts, and finished goods 
  • Social, governmental, and economic factors, including the threat of terrorism
  • Condition of a supplier’s physical facility and regulatory compliance
  • Natural disaster, including earthquakes, hurricanes, and tornados

An organization could also fall victim to supply chain financial risk if something happens that threatens the financial health of a supplier, such as bankruptcy. In addition, a company may suffer reputational risk if a supplier engages in any activity, such as bribery, child labor, or anything that could reflect badly on the company’s brand. Many businesses mitigate supplier risk by diversifying their suppliers.

Successfully managing risk is critical to an organization’s existence. Organizations should deploy real-time supply chain risk identification and real-time risk management strategies to identify and minimize threats that could interrupt access to goods or services that are critical to the business. 

Companies should also implement the appropriate risk-based decision-making strategies, and include SCRM as part of their annual enterprise risk assessment processes to ensure business continuity and supply chain resilience for the long term.

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