Supply Chain Risk Management Strategies for Mitigating Risks

Supply chain risk management (SCRM) is a critical concern for businesses in today’s globalized economy. Supply chains are becoming increasingly complex and interdependent, with goods and services passing through multiple countries and organizations before reaching the end customer. This complexity brings a host of risks that can disrupt the flow of goods and services, impacting not only the bottom line but also the company’s reputation and customer satisfaction. Effective supply chain risk management strategies are essential for businesses to ensure their continuity and resilience in the face of potential disruptions.

In this blog, we will discuss some effective SCRM strategies that organizations can implement to safeguard their supply chains and minimize the impact of potential disruptions.

Table of Contents

• What Is Supply Chain Risk Management?
• Why Is Supply Chain Risk Management Important?
• What are Supply Chain Risks?
• Supply Chain Risk Management Strategies
• How does Digitalization Enables Supply Chain Risk Management?
• How can Rishabh help Enhance Supply Chain Risk Management?

Supply chain risk management identifies, assesses, and mitigates these risks to ensure business continuity. SCRM is a three-step process of identifying, evaluating, and mitigating the risks within a supply chain that impact the integrity and authenticity of your products and services.

• Step 1: Identifying the potential risks within your supply chain, including daily and edge case risks, establishing a risk profile, and updating it from time to time by discovering new threats.
• Step 2: Conduct a risk assessment focusing on the stakeholders’ roles within the supply chain and define the possible impact of each risk on your business.
• Step 3: Planning and implementing effective supply chain risk mitigation strategies to eliminate or reduce vulnerabilities, find efficiencies, and ensure business continuity.

Supply chain disruption was majorly visible during the COVID-19 pandemic have continued with the subsequent extreme weather events, ransomware cyber-attacks, and logistics issues. Dangers in the form of geopolitical tension (like, Brexit), shipping accidents, regulatory changes, and sanctions are continuously increasing, making companies pursue new supply chain risk management strategies.

Did you know?

• A 2022 McKinsey survey^[3] suggests that the disruptions that occurred in the past two years have forced many companies to address vulnerabilities in their complex global supply chains. Many organizations fought the disruptions by increasing their inventory levels. However, they are now looking for smarter ways to ensure supply chain resilience with optimum inventory levels and reduced costs.
• Gartner suggests;
  • By 2025, supply chain risk management will be a crucial success driver for over 50% of organizations^[1].
  • 82% of CEOs in supply-chain-intensive industries plan to increase investments in digital capabilities across their enterprise.
  • More than 50% of organizations have not yet actively started to build a roadmap for supply chain digital transformation^[2].

Proven risk management strategies in the supply chain can help companies better identify and mitigate risks, operate more efficiently, reduce costs, and enhance customer service. Before you jump into the exercise of finding the right risk management strategies, it would help to understand what supply chain risks you might encounter.

Supply chain risks refer to potential disruptions, threats, or vulnerabilities that can affect the supply chain’s ability to deliver products or services to customers. These risks can arise from various sources and impact different aspects of the supply chain, such as procurement, transportation, production, inventory management, and distribution.

Internal Supply Chain Risks

These include disturbances in factors internal to your organization, like processes, people, and technology. You can exercise some control over these types of risks. These risks include:

• Manufacturing risks are caused due to disruption in internal operations or processes, causing them to go off schedule.
• Business risks result from changes in reporting structures, management, key employees, or processes impacting the supply chain.
• Planning risks cause by inaccurate demand forecasting and poor production planning.
• Mitigation risks are caused by failure to evaluate risks and implement contingency plans sufficiently.
• Cultural risks are caused due to the company’s disposition to conceal undesirable information or postpone acting on it.
• Compliance risks cause by non-adherence to labor laws or environmental regulations.
• Cybersecurity risks arise from insufficient risk management policies and controls to protect against data breaches and cyber-attacks.

External Supply Chain Risks

Some risks come from outside your organization. When events get triggered among your suppliers or customers and disrupt your supply chain, they are external risks. They are difficult to predict and need more resources for resolution. These risks include:

• Demand risks are created by miscalculating consumer demand based on purchasing trends or unforeseen demand rises.
• Supply risks are caused due to disruptions in the flow of raw materials, essential parts required for your production process, or finished goods.
• Environmental risks result from social-economic, political, governmental, terrorism, or climate issues that impact any aspect of your supply chain.
• Business risks are caused by managerial or financial instabilities in your suppliers’ companies or a merger/acquisition of their organization.
• Physical plant risks arise due to the state of the physical facility and the regulatory compliance of your suppliers.

Finally, many events, like price increases, material shortages, supplier relationships, quality failures, and delivery failures, can give rise to risks in your supply chain.

While many strategies have evolved over the years, here are some of the popular supply chain risk management strategies that you can use to reduce risk exposure for your business and run it efficiently:

• Utilize The PPRR Risk Management Model: Prevention, Preparedness, Response, and Recovery (PPRR) is one of the supply chain’s most prevalent risk management strategies. This methodology suggests taking precautionary measures, staying prepared with a practical contingency plan, responding on time to reduce the risk impact, and recovering from the disruptive event. It is by resuming normalcy in operations as soon as possible.
• Perform Supplier Audits: One way to reduce external risks coming from your suppliers’ end is to conduct periodic supplier audits. Ensure that they are not facing any financial or managerial instability. Also, check if their production is as planned to ensure a smooth supply of your raw materials and parts.
• Know Your Suppliers: You could improve your supplier onboarding process to incorporate stringent information & document requirements. It will ensure you know them well and can monitor them for potential risk areas. A custom software application will help you get notifications when it’s time to audit them or will raise red flags in case of any discrepancies with the acquired supplier info and your requirements.
• Prioritize Potential Risks: Adopt the strategy of mitigating the risks that are most likely to occur first. Also, analyze all your potential risks based on their impact on your business and brand. So, the risks posing high impact need attention on priority. Combine these two metrics of occurrence and impact to prioritize the potential risks in the supply chain scientifically. Technologies like data science and data analytics will speed up the process, making the results accurate and reliable.
• Improve Environmental SCRM: Environmental risks can be highly disruptive, as we saw in the case of the COVID-19 pandemic. So, you should have a contingency plan to mitigate them. If your primary supplier fails to deliver, you could adopt a multi-sourcing model to replace another supplier. You could use nearshore suppliers to shorten the travel time and reduce the potential risk. To eliminate this risk, you could identify periods prone to high risks, like the hurricane season, and stockpile materials in advance. A risk assessment software will help you identify threats based on data-driven insights and formulate contingency plans to mitigate them. Big Data finds application in such scenarios and provides impressive results.
• Get The Freight Carrier Metrics Right: Dependable delivery is critical to the smooth-running supply chain. When evaluating new freight carriers, it is essential to consider metrics like transit time, average load time, number of stops and average stop time, route optimization, and maintenance schedule. A dedicated fleet management software development partner can assist in managing the entire fleet management application development value chain – from building interactive mobile apps to integrating crucial third-party solutions.
• Enhance Cybersecurity Risk Management: Cyber-attack risk has also increased with technological interventions. So, it is critical to mitigate this risk by adopting strategies like establishing compliance standards for all third-party vendors, defining user roles and implementing security controls, training your employees about cybersecurity protocols, developing a unified disaster recovery plan with your vendors, establishing backup controls, and more.
• Improve Supply Chain Visibility: Getting better visibility on every aspect of your supply chain can alert you to issues before they become problems. With technological assistance like IoT sensors on containers, service portals, and automated reporting on inventory levels, you can take quick action if something goes wrong and save your reputation with a customer expecting a delivery. With real-time updates on shipments, you can timely optimize the route to avoid costly delays. Also, with better financial visibility of your suppliers, you can better predict potential risks and select new suppliers.
• Have A Logistics Contingency Plan: It is imperative to have a contingency plan or even multiple plans to ensure business continuity. You need to:
  • Map out your supply chain for entities that are most vulnerable to risk,
  • Diversify your supplier network,
  • Check out the disaster plans of your logistics providers,
  • Establish a crisis response team,
  • Develop solid communication channels among your employees,
  • Document processes, and
  • Keep updating the contingency plan based on current events.
  • And don’t stop right here. After creating a plan, it would be better to create a plan b, c, and d.
• Build A Risk-Aware Culture: Don’t restrict your supply chain risk reduction tactics to the management team. Building a risk-aware culture throughout the organization can take it to another level.
• Automate Risk Monitoring: Continuous risk monitoring is critical for supply chain success. You can eliminate human errors and increase efficiency by automating the risk monitoring processes for your business. A scalable digital solution will streamline your operations and improve security.
• Map Potential Risk Event Scenarios: You can utilize data science and predictive analytics to create advanced models for possible risk event scenarios. They can forecast what could happen and help you develop better contingency plans.
• Consolidate And Centralize Your Data For Easy Access: Data stored in silos can’t give you a complete or accurate picture of the current state of your supply chain. You can utilize cloud-based solutions and leverage data science, modeling, and predictive analytics to unearth valuable insights and quickly make data-backed decisions while enhancing your employees’ collaboration, productivity, and efficiency.

Digitalization has revolutionized supply chain risk management by providing tools and technologies that enable companies to identify, assess, and mitigate risks in real time.

A report by Gartner^[4] predicts that by 2026,

• more than 75% of commercial supply chain management application vendors will deliver embedded advanced analytics (AA), artificial intelligence (AI), and data science
• 25% of supply chain execution (SCE) vendors will have rewritten their core application to a microservices architecture
• 25% of supply chain decisions will be made across intelligent edge ecosystems

Digitalization enables supply chain risk management by providing real-time visibility into the supply chain, allowing companies to identify potential risks and respond quickly to disruptions.

Here are some ways how digitalization can help with supply chain risk management:

• Data analytics: Digitalization allows companies to collect and analyze large amounts of data from various sources, such as supplier performance, weather patterns, economic indicators, and social media. By analyzing this data, companies can identify and proactively mitigate potential risks. Further, digitalization enables companies to use predictive analytics to forecast potential risks and develop contingency plans. This proactive approach helps companies minimize the impact of disruptions on the supply chain and reduce the overall risk. A data analytics services provider experienced can help you discover new opportunities and hidden threats for your supply chains. They can help fast-track decision-making with data discovery, management, visualization & analysis.
• Cloud-based supply chain management systems: Cloud-based supply chain management systems can help businesses manage their supply chains more efficiently and effectively while improving supply chain visibility and collaboration. Cloud-based systems can also provide businesses with greater flexibility, scalability, and resilience, making responding to supply chain risks and disruptions easier.
• Automation: Digitalization enables the automation of many supply chain processes, such as order processing, inventory management, and shipment tracking. Automation reduces the risk of errors and delays, improving supply chain efficiency and resilience. It can help businesses minimize supply chain risks by automating critical supply chain activities, such as warehouse management, transportation, and production. Automation can help companies to reduce the risk of human error, improve efficiency, and enhance supply chain agility.

With our logistics software development focus, we have experience developing custom logistics and supply chain management software. It enables organizations to build resilient, more brilliant supply chains that adapt quickly to disruptions. We allow the integration of new tech capabilities to better address digitalization needs across storage, order prep, goods movement, and more. Our team leverages data analytics while developing systems to strengthen strategic sourcing, inventory optimization & sales-operations planning. We can custom-build various solutions like supply chain risk mitigation & management software, logistics supply chain management software, fleet fuel management software, and more to meet your needs.

We can custom develop supply chain analytics solutions with features like,

• MIS integration
• Demand forecast accuracy analysis
• Order processing & fulfillment visibility analysis
• Transportation, warehouse & distribution analysis
• Primary & customizable KPIs
• Role-based access control

Success Story: ELD Fleet Management Mobile App Development

Our SCM and logistics industry customers wanted to monitor, manage driver logs, and conduct vehicle inspections. It would help support fleet operations and minimize risks. Further, it would eliminate paper logs with accurate & reliable digital Records of Duty Status (RODS) for all commercial drivers.

We developed an Electronic Logging Device (ELD) mobile app with IoT capabilities to support fleet operations. It allows fleet owners & operators to monitor, manage driver logs and conduct vehicle inspections. It enabled potential risks by tracking driving habits & drive time that adversely impacts fuel consumption & management.

Benefits Delivered;

• 100% automation of driver vehicle inspection reporting (DVIR)
• 2x optimization of fleet & driver efficiency
• 62% increase in overall fleet profitability with insight into vehicle & driver performance

Read more about how we helped the client build this ELD fleet management mobile app with amazing features.

Concluding Thoughts

Supply chain risk management is crucial for businesses to maintain operational resilience and ensure their ability to meet customer demands. As the world becomes increasingly interconnected, supply chain risks are evolving and becoming more complex. However, with the right strategies, tools, and mindset, businesses can effectively identify, assess, and mitigate these risks to minimize disruptions and maintain their competitive edge. By implementing a proactive and comprehensive approach to supply chain risk management, businesses can safeguard their operations and create a more sustainable and resilient supply chain ecosystem for themselves and their partners.

Footnotes:
1. https://www.gartner.com/en/articles/how-supply-chain-leaders-can-prepare-for-the-next-big-disruption#:~:text=The%202021%20Gartner%20Supply%20Chain,more%20than%2050%25%20of%20organizations.
2. https://www.gartner.com/en/supply-chain/topics/supply-chain-digital-transformation
3. https://www.mckinsey.com/capabilities/operations/our-insights/taking-the-pulse-of-shifting-supply-chains
4. https://www.gartner.com/smarterwithgartner/gartner-predicts-the-future-of-supply-chain-technology