Making a Case for Supply Chain Risk Management
Companies large, medium and small continue to undergo sea changes in just about every area – from human resources to manufacturing, from finance to operations, and beyond, in part driven by the increasingly global nature of business. Regardless of size, one thing that the majority of companies have in common is the need to manage their supply chains and, as importantly, to manage the myriad risks that accompany supply chains.
First, though, let’s examine supply chain risk management: what does it really mean?
Wikipedia defines supply chain risk management (SCRM) as “the implementation of strategies to manage both every-day and exceptional risks along the supply chain based on the continuous risk assessment, with the objective of reducing vulnerability and ensuring continuity.” In other words, businesses must be aware of a wide range of risks and have the appropriate tools available to execute on strategies to minimize risks that include loss of reputation, litigation, and damage to the organization’s brand.
Now, how can companies best manage the huge range of risk to their supply chains?
First, recognize how quickly the world continues to evolve. Companies are increasingly global in scope and the technologies that support business have advanced at least a couple of times just in the past five years, so keeping up on your own is nearly impossible. As the world becomes more and more oriented toward global business, supply chains are at even greater risk because of that increased complexity. Remember, a supply chain’s strength, like any other kind of chain, can only be as strong as its weakest link.
Second, recognize that no company (or its leaders) can adequately adjust to the complexities of global business, nor is it possible to know everything in advance that could potentially be a risk to the supply chain. Factors that are out of your control might be current political activities both in your location and in other places that are critical to a smoothly functioning supply chain, as well as trade issues or tariffs, war or weather.
Data and Analytics are the Answer
Interestingly, the answer is in the very technology that has made the global business so complex and layered. Data and analytics can provide the basis for sound decision-making about your organization.
Managing a supply chain requires processes and capabilities to gather and analyze a vast range of data through predictive analytics. Otherwise, how could anyone have the ability to identify those places in the supply chain that might be at risk? For example, access to both weather intelligence and supply chain analytics can combine to spotlight suppliers who may be at risk of a disruption because of incoming or projected weather patterns, giving the supply chain manager an opportunity to put in place alternative suppliers to mitigate the risk.
Another example might be managing a large commercial construction project: a contractor in the process of building a new headquarters for a major company would have several levels of risk management to deal with: making sure that the right subcontractors would be available; ensuring that sub-contractors were properly vetted, trained and certified for safety purposes; making certain that materials from around the world (think Italian marble) would be at the job site at the right time; etc. The sheer breadth and depth of the data required to manage all aspects of a complicated supply chain like this would be essentially unmanageable without strong data and analytics to support these critical decisions.
People are another significant variable in the supply chain – managing contractors and subcontractors in situations that require licensing, insurance, appropriate training, etc., can be extremely time-intensive, and simply not feasible for smaller companies. A solid SCRM platform provides proper document management, data and analytics to validate that suppliers are compliant with the requirements and ensure that all suppliers’ information is centralized and accessible.
Other key areas closely related to supply chain risk management are sustainability, health and safety, and insurance verification, all of which can play a significant role in a successful supply chain.
Why Supply Chain Risk Management?
Access to the right data at the right time is critical to making the best decisions to support a strong supply chain. Then, deep analytical capabilities provide the foundation to use the data in decision-making. Some of the other benefits of supply chain risk management include, among others:
- A safer workplace and a healthier workforce through dependable supplier prequalification, auditing, and employee level qualification and training
- Streamlined contractor management, including document management – avoiding the pile of papers that ends up shoved into a file cabinet
- Reduced supply chain problems or delays through compliance reviews to anticipate future potential issues and handle them before they become a problem or a delay to the project or organization
- Reduced supply chain disruptions driven by gaps in safety protocols and processes – another important aspect of maintaining a healthy and safe working environment
- Ability to meet sustainability goals with clear evidence that supply chain partners are prioritizing their corporate and social responsibilities – an increasingly important set of objectives for most organizations
Knowledge is Power
It’s an old cliché that remains true. If you don’t measure it, you can’t manage it. Supply chains are especially vulnerable as the world increases in complexity, and the right supply chain risk management system truly can mitigate the vulnerability, and help organizations to build and maintain strong supply chains for their business.
For more information on Global Supply Chain Risk Management visit Avetta.