Developing Effective Risk Management Strategies with Supply Chains

Recent shifts in business strategy when it comes to supply chains involve making them leaner. This allows companies to eliminate unnecessary redundancy and reduce costs by cutting unneeded inventory. While overall this has helped to make companies more able to focus their efforts toward serving their customers’ needs, a side effect deals with the increased importance of each supply chain to the company as a whole. If a company only receives materials that it needs in the immediate future, then if a supplier is taken out of commission, the whole operation runs the risk of disruption.

According to an article recently published by http://knowledge.wharton.upenn.edu, developing effective communication between suppliers and companies worldwide first requires the creation of standards for evaluating the various risks and enacting effective risk-mitigation strategies. This also means that companies and their suppliers must take up a stance of, “What if I lose something?” as opposed to the more common approach of, “Why did I lose it?” A proactive approach needs adopting over the old reactive stance of previous disasters and crises.

The World Economic Forum (WEF) Supply Chain Risk Initiative has developed a blueprint for more resilient supply chains. With the approach that supply chain oversight should incorporate risk management as part of its overall structure, the WEF has designated three requirements for developing an adequate risk policy in regards to supply chains:

1. Develop a common vocabulary when talking about risk management.
2. Improved data and information between supply chains and their users.
3. Build greater flexibility and agility into any risk-mitigation strategies.

Chicago-based Council of Supply Chain Professionals (CSCMP) has developed the Supply Chain Risk Identification Structure (SCRIS) geared toward creating a common language that should allow supply chain managers to effectively communicate in the face of a crisis. The SCRIS should make it easier for supply chain specialists to identify the what-ifs of any situation as it pertains to a specific company’s operations. By taking a proactive approach using terminology common across various industries, a lot of the confusion that arises from differing views on supply chain risk is greatly reduced.

Three strategies that have arisen out of the use of the SCRIS include:

  • Redundancy: Companies should develop strategies to lessen the risk with only having one distribution center for their supply chain. This might involve having alternate suppliers for such cases, or even building a secondary distribution center in another area or region.
  • Contingency Planning: Companies should develop risk planning before an event takes place. In this way companies can make preparations and have everything in place, lessening the impact any one event can have on the company.
  • Changing Corporate Policy: Companies should look for problems with company policy when developing a risk management plan. Once discovered, company policy needs changing to take into account the strategies developed to mitigate loss from risk.

For more information about how to develop effective risk management strategies with supply chains, visit: http://knowledge.wharton.upenn.edu/article.cfm?articleid=3193