Globalization bringing Risk
Management in Supply Chain
What is Supply Chain & Supply Chain Management?
Supply Chain refers to the process or a network between different businesses and their relationships with each other.
Such a relationship defines the supply chain as the opportunity to hold the full potential of having inter and intracompany management and practices to maintain and organize services, products, people, activities, resources, and
information that are involved in moving a product from supplier to the end-user.
In short, the supply chain occurs as a relationship between different businesses that work collaboratively to provide
different products from the suppliers giving out the raw materials to manufacturers and then a whole product to the
end-users who consume or buy it.
The supply chain mechanism contains the raw materials provided by the suppliers which are transported to the
manufacturers who utilize the raw material to develop the product. Then it is transported to different distributors and
warehouses from where it is passed forward to the retailers and their stores from where the end-users buy them.
This whole scenario of businesses collaborating to provide the products to reach the end-user is the supply chain. The
supply chain is passing or transferring services, information, and goods ranging from suppliers and all the way to the
end-users.
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Whereas supply chain management includes the set of
approaches and ways where the integration of suppliers,
manufacturers, warehouses, and stores is done efficiently and
effectively so as to produce and distribute the right amount of
product at the right time and at the right location minimizing the
system-wide costs by simultaneously providing a satisfactory
service exactly as per the requirement.
Supply chain management includes a number of processes
integrated in such an efficient manner so that they provide the
best of every aspect related to the products to the end-users.
It includes planning, sourcing, making, delivering, and buying
processes that are well performed and acted upon by the
suppliers, manufacturers, distributors, and retailers.
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What Makes SCM a Challenge
Supply chain management involves every step, approach, and
process that goes into producing a product from its raw material
or resources to get it all done and making it available for the
customers or end-users.
Now, the whole process includes a lot of work, a lot of
transportation, a lot of data, a lot of time management, cost
management, a lot of workers, a lot of trust, a lot of management,
and tracking which adds up to different and soaring challenges for
the supply chain management to face.
Some of them can be clearly distinguished as the following:
Uncertainty in the supply chain arise due to the following issues:
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Weather, natural catastrophe, or war
Travel timing or transportation time difference
Breakdown of machines or vehicles in which the products are being transported
Change in labor conditions, local politics, or different border issues in different regions
However, the complex situation of every and almost all the global supply chain depends on minimizing the internal cost,
minimizing issues related to uncertainty, and in dealing with certain uncertainty conditions.
Another risk or uncertainty that falls upon or could fall upon a supply chain management is the security risk. As we all know,
the uprising adoption in technology has laid rather a smooth path for businesses to run over, it has also brought hackers and
unauthorized access to data and information making every digital or technology-based data/information a liability.
Keeping up with such risks includes a vast supply chain risk management approach under the guidance and usage of
cybersecurity.
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Supply chain risk management (SCRM)
Risk management is the process of assessing, analyzing, and
measuring the risks and factors leading to risk and then
developing a plan or a strategy to overcome and manage that risk.
The strategies might include transferring risk to another party, risk
mitigation or avoidance, and channel risk sharing.
An SCRM system or process is built keeping in mind that an
organization can work without worrying and having a burden of
stress over their shoulders which will definitely bring out the best
of results. With an SCRM built process, an organization can
smoothly keep their focus aimed strictly on fulfilling the demand
and satisfying their customers.
SCRM deals with managing uncertainty issues that may arise in almost every business. It not only helps in maintaining the
risks posed on the supply chain disruption, but it also helps in managing the fallout of the PR crisis or IP thefts.
Effective risk management offers an organization to be one step ahead of its issues or risks that may break it even before
they arise by simultaneously diminishing the errors that might occur. It also helps in building and strengthening internal
business processes.
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Why do we need SCRM?
Supply chain management includes a lot of threats to its whole
process and that is not just one issue, if a supply chain process
even in its single step is confronted by an error or risk then all the
following processes are doomed to failure.
The threats that are included in the supply chain are the material
shortages, natural or manmade disasters of issues, volatility,
financial issues or failures, etc. There are many threats that fall
between the suppliers to the end-users. Supply chain risk
management software is adopted by many organizations that help
to identify, manage, and mitigate the risks, be it internal or global,
it protects their supply chain operations as a whole.
We require supply chain risk management to overcome such
issues that can disrupt our supply chain processes. It will help in
providing the right product at the right time in the right location
with the right demand, and to the right customer.
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Organizations Determining Risk Tolerance
As different industries face supply chain risks differently, their coping mechanisms and processes are also different.
Moreover, every organization must be able to determine its risk tolerance in the following areas to implement the right
supply chain management structure for operationsIntellectual Property (IP): The thefts of IP are increasing with the increasing demand and adoption of technology. As
standards are very different in organizations, also in the ones that are in different regions, organizations should
definitely hold the “pick of the litter” when it comes to the offshore manufacturers.
Technology: When a lot of different technologies are arising in the market to revolutionize the industries, it will be an
apt decision for organizations to adopt such technologies that help in predicting the trends and issues in the system or
processes along with making their employees skilled at it. Organizations must put their aim on training their workers on
demand and planning tools such as SCRM to help mitigate and plan supply network planning, optimizing, logistics
monitoring, and visibility tools.
Offshoring vs. outsourcing vs. near shoring vs. insourcing: When an organization sets or adopts a business model for
itself, it ought to go through several relevant factors such as shipping times, government policies, transportation costs,
training, workforce output, quality, traceability, time to hire, sustainability, local business practices, wages, restrictions,
etc. Moreover, it should be put in a compulsion order for organizations after choosing a perfect business model to reevaluate it as per the risk tolerance and business objectives.
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Supply Chain Risks on different levels
In supply chain management there are different levels that work efficiently towards making it possible for the
customers/end-users to get hold of products at the right time possessing good quality.
Thus, every other organization that includes the suppliers, manufacturers, distributors, retailers face different risks and
issues in their operations, and some of them are given below.
Supply chain risk as per the Suppliers:
Supply chain disruption risk
Relationship risk
Human Resource risk
Supplier environment risk
Supplier financial risk
Disaster risk
Human resource risk
Regulatory risk
Supplier performance risk
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Whereas, the Supply chain risk as per the Companies includes:
Legal risk
Operational risk
Safety risk
Human resource risk
Health or disaster risks
Financial Risk
Technical risk
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Now, the Supply chain risk as per the Customers includes:
Environmental risk
Financial or Cultural risk
Standard risk
Regional Risk
Market risk
Brand or the reputation related to the brand risk
Product quality and liability risk
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Risk Assessment
How we assess a risk depends on every step and process taken that is included in an organization’s supply chain.
Nonetheless, the assessment of risk is basically divided into 3 main categories defining how it is broken down:
The 3 major steps to Risk Assessment includes:
Identification of the risk which propels into the questioning of the whole process and every single step that goes
into it, as to “what might have or what can go wrong”. The risk, however, must be defined very clearly and
absorbed understandably as to how the next step would be taken and what must it include.
Analyzing the risk includes the likelihood of defining the base of the risk. It helps in analyzing and telling clearly
what the risk might bring and badly it could impact a step/process or the whole process.
Risk evaluation is the third and last step that comes under risk assessment. It includes the level of the risk and the
risk criteria along with its definition in advance as to how and what goes into evaluating and mitigating it.
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Risk Control
Everything works on the decisions that are taken as to what might work best in handling and controlling the risk
from getting worse.
Risk controlling includes the reduction of the risk so as to level it up to an acceptable level and a lot of work should
go under it to help it come to such a level.
Risk Reduction and Acceptance (management)
Risk reduction is a process that goes into reducing and
measuring the impact of the risk. The aim is to keep at a level
that does not move onto other processes or steps making them
fall under risk and disrupting the whole supply chain
management process.
As to the acceptance of the risk is considered, it is referred to as
the risk that an organization accepts and works with trying to
make the most out of what they have by working accordingly so
as to not let other sectors suffer the results of the risk.
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