How to assess risk in Supply Chain?
- March 5, 2018
- Posted by: Kirit Goyal
- Category: Supply Chain
The complexity of supply chain makes way for a lot of risks. There are several components of supply chain where any risk could arise abruptly. This could hamper the business in many ways. But, it is easy to identify the risks and manage them before it is too late. By adopting a risk management plan, you can tackle the risk before it hampers the image of your business. But, before you do anything, it is essential to identify the risks in supply chain.
Kinds of risks in the supply chain
There are mainly two types of risks associated with supply chain network. They are external risks and internal risks.
1) External Risks
External risks are the kind of risks that are out of your control. These risks are driven by upstream or downstream events in the supply chain. There are five kinds of external risks. They include,
- Demand risks that are due to any misunderstood or unpredictable customer or by end-customer demand.
- Supply risks that are due to the interruptions in the flow of either raw material or parts within the supply chain.
- Business risks that are due to the factors like the financial or management stability of the supplier, or due to the sale or purchase of supplier companies.
- Environmental risks that are associated with social, economic, governmental or climate factors
- Physical plant risks that arise due to the condition of a physical facility as well as regulatory compliance of the supplier.
2) Internal Risks
The internal risks in the supply chain are the kind of risks that are within your control. These risks can be easily managed as they are under the control of your business. There are five kinds of internal risks. They include,
- Manufacturing risks that are due to interruption of internal processes.
- Business risks that are due to the alterations in key personnel, reporting structures, management or business processes.
- Planning and control risks that are due to shortcomings in assessment and planning.
- Cultural risks that are due to the cultural tendencies of a business to hide negative information.
- Mitigation and contingency risks that are due to not seeking alternative solutions to manage anything that goes wrong.
Once you successfully assess the kind of risk in the supply chain network, it becomes easy to tackle it.
Here, we have mentioned five steps to inculcate a supply chain risk assessment process. There are some guidelines on which any business can develop the supply chain management strategies.
Institutions such as the Organization for Economic Co-operation and Development have developed guidelines on which enterprises can base their supply chain management strategies. Some efforts focus on amplifying supplier value contribution, while others aim to increase ethical sourcing.
Take a look at the five steps to develop supply chain risk assessment.
Five steps to develop supply chain risk assessment
1) Delineate stakeholder concerns
The upstream and downstream operations of the companies are determined by the shareholders, employees, and the customers.
The shareholder value of a company must be managed in the followings ways:
- Flexible strategies: The best way by which you can offer maximum benefit for your company is by inculcating multi-year supply chain plans that easily adapt according to the changing scenarios and conditions.
- Collaborative relationships: The companies that utilize the same key performance index as their suppliers are sure to enhance their product quality and save logistical costs.
- Customer relationship management: The companies that manage to perform well manage their supply chain processes according to the specific set of audience.
Employees, customers and shareholders share the same set of values. The customers amount renewable energy, preserving the operational integrity, and discarding waste. The employees are more concerned about workplace engagement, safety and process strategy. The companies must release the essential data across the supply chain. This would help them to recognize the risks in the supply chain.
2) Analyze all the points of risk
Once you figure out what the stakeholders expect the company to gain, the supply chain managers must take a step towards defining the components that are likely to obstruct the business form pulling off all the objectives.
The managers must figure out how the upstream partners carry out the operations. For instance, the managers must determine the materials that the manufacturers are going to use for developing the goods.
3) Inculcate a risk mitigation blueprint
The most effective supply chain risk management strategies are connected to three resources that include people, technology, and procedures. All three of these resources play an important role in defining the data that is accumulated from the suppliers.
The companies form an infrastructure that is purposeful for constantly gathering, translating, and acting on the information.
Electronic code-enabled radio-frequency identification is one technology that helps in enhancing the supply chain visibility. The technology receives, stores, as well as transmits the data via radio waves to the readers that lead the information to the ERP systems (enterprise resource planning systems).
4) Join hands with the third-party auditors as well as the data collection agencies
The next step involves partnering with the third-party auditors and the data collecting agencies. It is important because it can give the majority of the resources to accumulating and validating the supply chain data. The businesses are assembled together on delivering procurement analysis service.
5) Replicate outcomes
Once the companies understand the way of subtly reducing the risks, the next step is to certify the adequacy of the specific threat-reduction efforts. The upstream partners might not be able to offer the procurement information. They are often unable to neglect to coordinate to procurement standard as well as deadlines established by the firm.
Here, the company needs to pick amongst the various solutions, one option being switching to some other upstream partner.