What Does Successful Supply Chain Risk Management Look Like?

The supply chain is one of the most important processes and is therefore very open to potential risks and threats. Problems occurring in the supply chain negatively affect both the retailer and the customer, so measures against any risk must be taken. The strategy used to recognize risks, take action and manage them is called supply chain risk management. Possible risks are predefined as internal and external factors through SCRM, and intervention plans are created. Thus, the damage that the organization can receive is minimized, and the organization is made more durable. There are six strategies frequently used for supply chain risk management. These strategies strengthen the organization by preparing it for risks.

What is Supply Chain Risk Management (SCRM)?

The entire logistics process in which a product or service is delivered to the customer is called the supply chain and is very important. It is of great importance that organizations understand possible risks in the supply chain and are prepared for and manage these risks.  This is because there are many risks that can be encountered in the supply chain and each risk causes disruption of jobs. For this reason, this management is used as a strategic approach to solve problems in the supply chain. SCRM includes not only logistics processes but also planning and management of the flow of products, finding resources, and using resources efficiently.

What Are the Risk Factors in Supply Chain Risk Management?

Risks that may arise in the supply chain are grouped externally and internally in two ways. When making supply chain risk management, it is very important to deeply understand these risks, evaluate them, and develop strategies to reduce both types of risks.

1. External Supply Chain Risks

External supply chain risks include risks that arise from factors outside of the organization, and that the organization has no control. These risks can also be triggered by problems between suppliers or problems between customers.

• One of these risks is demand risks. It results from problems such as unforeseen requests or miscalculations of demand.
• Another is the supply risk. When raw material cannot be obtained in a timely manner or is taken incompletely, these risks arise when problems with the supplier are experienced. It can even cause production disruptions or cuts.
• Environmental risks, as the name suggests, occur from environmental risks. It is quite difficult to control and predict. It includes natural disasters as well as socio-economic, political, and administrative problems.
• Business risks are another problem that is among the risks of the external supply chain risks. Even if everything goes smoothly, the change or problem that occurs in one of the stakeholders can be reflected in your organization. Problems such as the supplier’s bankruptcy or hand change can be negatively reflected in the organization.

Although these risks are difficult to predict and control, they are risks that need to be prepared. With the help of this management, the organization can manage these risks with minimal harm.

2. Internal Supply Chain Risks

Internal supply chain risks are easier to control and predict than external risks. It can be managed with an effective strategy and these risks are prevented from harming the organization.

• Production risks are one of these risks and cover problems with internal operations or processes. It is very important as it causes disruption of production.
• Business risks consist of problems arising from the way the business is done. Problems in processes such as management, reporting, and job distribution are among the business risks.
• Planning and control risks are among the risks of the internal supply chain. Poor management consists of problems such as erroneous or false predictions, and incomplete evaluations.
• Mitigation risks arise when there is no plan for crisis moments. If the resulting problem cannot be managed and a strategy cannot be determined, reduction risks occur.

All these problems arise from the structures within the organization and can be controlled by effective supply chain risk management. Although internal factors can be controlled more than external factors, the intervention takes place somewhere. For this reason, it is most correct to act beforehand.

Effective Supply Chain Risk Management Strategies

There are several supply chain risk management strategies that you can implement to see the risks, be prepared, and manage the problems in advance. Each strategy makes it easy to manage the process effectively.

1. Manage Environmental Risk in Your Supply Chain

Being prepared for environmental risks is very important because it can greatly affect the organization. One of the most suitable examples of this is the Covid-19 process. The first step to managing risks from environmental factors is to identify potential risks. It is important for supply chain risk management to identify environmental risks that could potentially occur in the supply chain and then prioritize these risks by accurately assessing them. Whichever risk is primarily the biggest threat, you need to be prepared for it. For this reason, it is recommended to make preparations such as emergency plans, alternative suppliers, multiple resources, and a flexible business model.

2. Improve Your Cyber Supply Chain Risk Management

Digital processes are an important part of the supply chain. Cyber supply chain risk is a big problem because it causes problems such as phishing, hacking, and infected software.  Having a vulnerability is very dangerous not only for the organization but also for customers. Strategies you can implement include security controls, data controls, security software, access control, and compliance standards for third-party vendors. In addition, you need to prepare an emergency plan to be clear on what to do in a possible cyber-attack.

3. Follow the Right Transport Company Measurements

Reaching the product or service to the right person at the right time is one of the most important stages in the supply chain. Deliveries made on time arouse trust in customers. For this reason, the transport company must be an attentive company. Otherwise, disruptions may cause both cost increases and brand reputations to be damaged. Strategies you can apply for this management include evaluating the transport company in detail. During this assessment, details such as transit time, loading time, route optimization, and maintenance schedule should be considered. In addition, it is important to find the most resources to use in a possible emergency and not be connected to a single transport company. Spare transport options make the organization flexible.

4. Implement a Logistics Contingency Plan

One way to ensure business continuity in possible problems is to have a logistics contingency program. In supply chain risk management, there is a need for not only an emergency plan but more than one emergency plan if possible. This is one of the most effective strategies you can do to be prepared in advance. You need to think versatile and consider even the smallest details for the emergency plan. For example, it is an important detail which of the stakeholders will be more affected in the event of a possible crisis and which is insufficient. In addition, it is necessary to conduct a risk assessment taking into account internal and external factors. It is also important to diversify the supplier network and duplicate resources. Adhering to a single option will do great harm to the organization. It also simplifies the process to predetermine the crisis response team and equipment.

5. Consistently Monitor Risk

For an effective strategy, you need to constantly follow the risk factors. Although you already have many plans for emergency situations, you still need to monitor the risks. This is due to the fact that the risks can change continuously. Each stage in the supply chain has many potential risks, so it is important to follow. Digital tools are very effective in facilitating the monitoring process.

6. Use Data to Model Key Risk Event Scenarios

It is possible to model risk scenarios using data to see how potential risks will affect the organization. This method is used among supply chain risk management strategies and makes it easier for you to better understand the risks. Gathering data about demand, suppliers, and inventories, and then creating a possible risk scenario such as supplier bankruptcy can make modeling easier. In addition, it is possible to create risk scenarios through modeling tools. These scenarios allow you to look at risks through a different window and evaluate them comprehensively.

What are the Steps in the Supply Chain Risk Management Process?

Paying attention to some key steps when planning the supply chain risk management process makes it easy to handle the process extensively.

The first step is to identify possible risks. To identify risks, you need to somehow evaluate the supply chain details and determine which one you are more open to. As a second step, you need to sort these risks according to the possibility of happening and how they will affect the supply chain. In this way, it becomes easier to prioritize risks correctly. Step 3 to creating a supply chain risk management strategy is to create an intervention plan. Here you need additional resources, an emergency response team, crisis equipment and backup equipment, and multiple emergency plans. Finally, you need to develop this plan. It is important to follow up and evaluate new risk factors continuously.