Definition of Risk management : It the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events
In the survival of the fittest paradigm supply chain operation needs to be more cost conscious, flexible ,innovative and agile.Supply chain starts at one corner of the world and ends thousands of miles away in a different continent. For instance one component of the product is manufactured in Taiwan, other in Bangkok and then it is assembled in China for the consumer in Europe . This decentralized supply chain concept evolved over a period of time to leverage the cost benefits was working indeed quite well up til now . But the calamities like Tsunami in Japan or floods in Bangkok shakes the entire supply chain and it’s effect is felt by customer in some other corner of the world.
Now a days localized event’s effect can be experienced across the globe due to decentralized supply chain model.
Supply chain operations are exposed to risk from a number of internal factors, which are easier to be addressed, or external factors, which are beyond the control.
- Natural Calamities
- Political and regulation change
- War ,Terrorism , Sanctions etc
- Strikes and labour management concerns
- Change in demand pattern, Bull Whip effect
- Product recall , quality issues
- Inflexible supply chain processes
- Poor demand and supply visibility
- Issues caused by major suppliers, supplier bankruptcy and lack of quality measures at supplier site.
- High dependability on single supplier
- Unavailability of alternative supplier
- Intellectual property breach , Counterfeit , Piracy etc. Competitor companies quite often source from same vendor and this risks IP breach and counterfeiting
Any fracture in supply chain operations has myriad serious effect on business.
- Lost Market share and business to competitor
- Opportunity cost
- Lawsuit , in case of any legal bindings
- Impacts top line and bottom line
- Brand integrity and reputation
Supply chain risk management is very complex due to interconnected contradicting objectives . For instance supply chain manager strives to bring down the inventory holding cost though Just in Time (JIT) like philosophies , but at the same time feeling the requirement to hold inventory to buffer against any upstream disruptions and avoid delivery delays . The risk management strategies should be optimal to mitigate the supply chain risks and safeguarding profit margins .
Few Strategies to mitigate supply chain risks
- Multi- Sourcing strategy spread across various geographic location . If possible, the increase in price due to multi-sourcing strategy can be offset by long term contract with vendor .
- Efficient supplier evaluation protocol and not providing contracts only based on price evaluation
- Contingency sourcing strategy
- Due diligence of supply chain failure points/risks and further contingency plan to cover identified weaker links in supply chain. If the impact on the supply chain is low then focus on cost is more rational but in case of high risk events the risk mitigation should be prime objective.
- Investment in applications which enables better supplier collaboration and E2E supply chain visibility
- Appropriate insurance mechanism.
This is a very short introduction to the complex realm of supply chain risk management.
I invite everyone to share their views and experience on Supply chain risk management and how best we can build an effective and effiective supply chain processes.