Supply Chain Risk Management

Supply chain risk management (SCRM) is the coordinated efforts of an organization to help identify, monitor, detect and mitigate threats to supply chain continuity and profitability.

Threats to the supply chain include cost volatility, material shortages, supplier financial issues and failures and natural and manmade disasters. Upstream of an organization are the suppliers who create goods and services used in a company’s own operations. These include raw components or materials that flow into direct manufacturing as raw materials. There are also indirect products and services that facilitate the company’s actual operations.

The downstream supply chain efficiently distributes a company’s products or services to its customers. All contracted suppliers, both upstream and downstream, must be proactively managed to minimize financial, confidentiality, operational, reputational and legal risks.

Ideally, if the risk is properly managed, nothing occurs that has a negative impact on operations or profitability such as what happened to Equifax, Samsung, Chipotle or any of the other companies that have seen their share price fall and their value erode following an untoward event.

Instead, a rational objective for procurement and supply chain leaders should be to create a secure but high-performing supply chain. This is one in which risk can be minimized while value-added business relationships can flourish. Think of it as “intelligent risk management.”

5 supplier risk management techniques that make a significant contribution to ERM security. 

• innovation and efficiency in contracting management;
• strategic requirements for supplier insurance, indemnification, and limitations of liability;
• provider optimization and redundancy;
• supplier financial stability visibility; and
• proper diligence in operational supplier assessment reviews.

All five are of equal importance to making intelligent risk work. They are even effective at dealing with so-called “black swan” events that cannot be predicted using normal methods of statistical analysis.

-Gazi Sanaul Hasan