Carefully planned supply chain risk management strategies are helping leading organizations move away from the reactive model of the past, in which every disruption is a new crisis and responses are created on the fly. Instead, they are developing processes and capabilities to manage risks and disruptive events proactively as part of day-to-day operations.
If we’re honest, few of us enjoy operating in a reactive state. It’s stressful not being prepared. Many businesses, however, are doing just that; crossing their fingers that risks won’t materialize and everything will go as expected. But you already know to expect the unexpected. It’s how you lessen the impact of the unexpected and mitigate those risks that matter.
Let’s take a closer look at the five strategies that comprise supply chain risk management, and the parts played by stakeholders throughout the organization in the design, governance, and execution of an agile SCRM model. Finally, we’ll unpack three tips for shifting from a reactive to proactive stance.
Supply chain risk management top five strategies
Map and monitor: A full supply network analysis creates network visibility. Managers can see suppliers in Tier 1, Tier 2, and beyond. The supply network can be filtered by material, by product, by shipping lane, and even by type of risk. Once this map is in place, procurement and logistics leaders can monitor for changes or disruptions, enact scenarios, and use insights to inform planning options.
Check supplier performance: Build a strategy for monitoring supplier performance metrics. Ongoing metrics can include delivery, quality, cost, and more. Managers can also evaluate and monitor various risks including insolvency, forced labor, cyberattack, political unrest, weather, and other potential disruptions. Each can be assigned a particular risk score. With a supplier network mapped to products or materials, it’s easier to shift to alternates if necessary.
Create contingencies: Having solid, reliable alternate plans is the heart of supply chain risk management. The sooner companies know of a potential disruption and can shift to an alternate supplier or lane, the more time and money they save. With a contingency strategy, supply chain managers can prepare for supply shortages, natural disasters, and geopolitical events.
Integrate automation: If you’re still relying on human expertise to build scenarios and score risk, you’re losing time and money. Leading companies have automated and integrated supply chain risk alerts into their existing workflows. All stakeholders can access the information they need, which reduces manual errors, improves data accuracy, and makes operations more efficient.
Use technology: “Technology” used to mean computer spreadsheets, but now it means sophisticated artificial intelligence, machine-learning, and computer modeling. Modern software platforms can detect, score, and alert managers to relevant disruptions in real-time.
When combined, these five universal supply chain risk management strategies support a responsive, intelligent supply network that can detect, mitigate, and respond to risks.
The agile supply chain risk management model
Agile Supply Chain Risk Management (Agile SCRM) is a best practice approach that combines these five SCRM strategies. Agile SCRM takes an end-to-end view of the supply chain, with a focus on efficient collaboration, robust planning, and rapid, effective decision-making. This approach is not an add-on, it is fully integrated with the management systems, organizational structures, and operating practices of the business. That means that the whole organization is involved, from senior leadership to the front line.
Figure 1: Agile Supply Chain Risk Management brings the whole organization together
Starting at the top of the pyramid, the company’s senior leadership team works with the enterprise risk management function to establish the risk management strategy goals by determining the overall risk appetite of the organization, in line with its other strategic goals. That appetite can look very different for different types of organization. A manufacturer of life-saving medical devices may have almost no tolerance for disruptions to the supply of critical components, for example. But a large supplier of commodity materials with multiple production sites around the world may be able to tolerate periodic outages at individual sites with little effect on the wider business.
The role of leadership in supply chain risk management
The senior leadership team also shapes the organization’s risk management culture. They can do that via formal mechanisms, for example by insisting that different functions and business units produce supply continuity plans or track risk-related performance metrics. And they can also use informal mechanisms, for example by asking questions about supply chain risk in management meetings or by publicly acknowledging and celebrating examples of best practice from across the business.
An organization’s risk strategy is translated into a supply chain risk management strategy by its functional leadership. The chief supply chain officer, chief purchasing officer, and other relevant functional leaders will be responsible for determining the operational steps needed to meet risk goals. That might include establishing robust processes covering make-or-buy decisions for key technologies, or top-level policies for supplier selection, sourcing footprint, and inventory management.
Many of those decisions are interrelated, and they all have implications for other aspects of business performance, from the procurement costs to time-to-market for new product introduction introductions. As a result, SCRM decision-making needs to involve intensive cross-functional collaboration and a perspective that covers the end-to-end value chain.
Motivating teams for supply chain risk management
Functional leaders can’t just demand that their teams achieve their SCRM goals. They also need to give those teams the tools, skills, and motivation to manage risks. To do that, they need to put a whole suite of enablers in place, including compelling and clearly communicated messages about the importance of SCRM for the organization, access to the data and analytical approaches needed to support effective decision making, and the organizational structures that allow those decisions to made in a collaborative and cross functional way.
The functional front line is the place where risk management strategy becomes risk management action. Proactive risk management requires the whole supply chain organization to think about risk. Demand planning teams need to consider the likelihood and impact of unexpected spikes or dips in customer demand. Sales and operations planning teams must adapt to fluctuations in the availability of inputs. Procurement teams must assess the risk implications of supplier selection and supplier management decisions, and design commodity strategies that manage exposure to price volatility. Business continuity management teams need to think about the impact of supply disruptions in their scenario analyses and response plans. And logistics teams must consider risk factors in shipment planning, and be ready to take mitigating action during shipment execution if delays and disruptions occur.
Ensuring that frontline teams take their risk management responsibilities seriously requires management attention and oversight, along with effective top-down communication and change management efforts. Communication must be two-way, however. Frontline operational staff often have the best picture of current and emerging risks and organizations need mechanisms to capture their knowledge and use it to inform the evolution of risk management strategies and processes. Bottom-up communication is a key part of good change management too. Sharing examples of best practice from one part of the organization encourages others to adopt similar approaches.
Proactive tip #1: Move from manual to automated processes
The first proactive step to take towards a responsive supply chain is to make a transition in how risk is identified. Manual hunting and pecking may discover some risks, but this process takes time and frequently misses many of the risks that haven’t historically been a threat. When it comes to the supply chain, risks can cause upstream and downstream problems that directly and indirectly affect the bottom line. Any process that delays the identification of risks will also delay their mitigation.
Supply chain logistics, if done correctly, identifies all the risks across the supply chain that are labor-intensive, requiring plenty of data entry, often in static spreadsheets. Because shipments generally follow the same lanes, the process is repeatable. Erroneous and/or incomplete data could cause serious supply chain disruption, leading to lost profits and a damaged reputation. Organizations must get control over the risks plaguing the supply chain.
By shifting towards a more automated, dynamic risk assessment and analysis, companies can quickly respond, often before the risk has matured into a real threat. An integrated solution that continually collects real-time supply chain data can be configured to provide notifications of risks across all nodes in the supply chain. Instead of time-consuming, error-prone, and partial aggregation of data, organizations have real-time, actionable data at their fingertips. This is data that informs decisions, empowering leaders with information they can immediately use to proactively plan for all types of risks, even when those risks are unfamiliar.
Gathering the data required for these insights is nearly impossible to do manually. There are simply too many changing data points involved and too few resources.
Proactive tip #2: Measure the right things
With traditional planning, supply chain status is often unreliable and based on a single mode. Too many decisions are made on incomplete data. Even worse, many of those decisions are completely reactive, happening after the risk is imminent or has already caused problems. Part of this data is incorrect; even more is incomplete and almost all are discovered too late.
Companies must first measure the right data points to implement an effective supply chain risk mitigation strategy. Once a shipment is in route, the window is closing on what risk mitigation efforts can be launched. Instead, having insights into key performance metrics early, even a week or more before pickup, gives companies the opportunity to change course if needed. Multiple modes, lanes, carriers, equipment, and more can be modelled simultaneously against potential pitfalls to reveal patterns, severity, and possibilities.
If supply chain leaders are looking in the wrong direction, relying on bad or incomplete data, risks are missed. When risks are allowed to mature, they become dangerous to the supply chain. Instead of proactive planning that leverages real-time and accurate data with prescriptive analytics, business leaders are forced to engage in damage control. An integrated solution will collect and present data continually so leaders can spend more time proactively planning and less time cleaning up the mess.
Solutions must go beyond identifying risks to provide reliable risk scoring for multi-modes, including global, multimodal, distribution centers, and ports. Risk scoring operationalizes the data to make it instantly usable. Decision makers need not spend time gathering and analyzing data but to simply look at a dashboard that displays the risks and their related scores. These scores provide instant visibility into the severity and likelihood of the risk occurring, as well as recommendations for mitigation of each risk. By being able to prioritize mitigation efforts, companies are more efficient and effective, focusing on the right data and strategies.
Proactive tip #3: Be more nimble with change
Change happens. We all know that the best practice is to anticipate change, but how? How does an organization transition from this reactive mode to proactive planning that constantly surveys the landscape for the most pressing risks? With traditional planning, there are simply too many risk factors that change too often to be considered holistically. Organizations do the best they can, but things are missed. The supply chain planning process is little more than crossing fingers and hoping for the best.
Fortunately, it’s easier than ever for organizations to drive a more responsive supply chain, one that leverages different types of data. Integrated solutions already exist, helping companies quickly transition from traditional planning to dynamic planning. The organizations that embrace this agility through automation experience value often on day one.
The answer is to integrate supply chain risk analysis software that uses machine learning, AI and multi-factor prescriptive analytics to automatically identify risks across the supply chain. These may be risks like weather events that can delay or damage shipments, or infrastructure outages that can interrupt supplier operations.
The solution goes further to also identify areas for cost savings related to these risks. For instance, when weather data is combined with operational data, prescriptive analytics may reveal a simple change in the mode of transportation may not only ensure the shipment makes it to its destination on time but also at a lower cost.
Partner with a supply chain risk mitigation expert
There are several supply chain risk identification and monitoring solutions on the market. The problem is most of these stop at simply monitoring. They don’t provide the prescriptive analytics to help companies determine which course of action is best to mitigate those risks. Understanding the risks is, of course, a priority, but the real work comes in how to proactively plan so those risks can either be prevented altogether or at least minimized.
When looking for a supply chain risk mitigation solution, be sure it is capable of continually assessing risks across multiple factors, historically, in real-time and predictively. Risk scoring is a highly valuable feature that speeds decisions. It’s one thing to bury risk data in reports. It’s quite another to see those risks scored, ranked, color coded, and displayed on a dashboard in real time.
In conclusion, supply chain risk management strategies can help organizations be more agile and proactive when responding to risk. They can help integrate all stakeholders in an organization when developing processes and capabilities for risk management design, governance, and execution.
By implementing these five supply chain risk management strategies, your operation can identify potential risks earlier, respond more quickly, and outpace the competition.
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