Supply chain risk management (SCRM) is the process of managing the flow of goods and services, managing the movement and storage of raw materials, of work-in-process inventory, and of finished goods from supplier of raw materials to the end consumer. It is an integral part of a business and is critical for the success of the company. Supply chain management is not easy as there are several factors which are beyond the control of the company. It involves a lot of coordinating with third parties for procurement, storage and delivery of material. If there is a delay at the end of the third party the company too gets affected. It is therefore essential to mitigate the risks in the supply chain thereby reducing uncertainty.
Supply chain risks
There are several aspects of the supply chain that have considerable risk and uncertainty. Some of the risks, uncertainties and problems associated with the supply chain are :-
- Unavailability of raw material – There are times when firms face shortages while procuring raw materials. This may hamper production if the firm does not have adequate safety stock.
- Delay in procurement and delivery of goods – Timely receipt and delivery of goods is critical for any business to meet its schedule and intended targets. Such delays can hamper production schedules, impact customer fulfillment performance which may also lead to loss of customers.
- Conforming to quality and meeting compliance – It is essential that the raw material procured from suppliers is of the prescribed standard and relevant compliance have been met by the supplier. Low quality raw material will not only result in a substandard final product but could also invite legal sanctions. However it often proves difficult to verify raw materials from several different suppliers.
- Tracking shipments – Firms need to keep a constant track of the movement of goods in order to plan effectively and also prevent pilferage. Keeping a track of shipments can be an expensive and complex process making it a challenge for most organisations.
Steps to mitigate supply chain risk
Supply chain risk management (SCRM) is the implementation of strategies to manage both internal and external risks along the supply chain based on constant risk assessment with the objective of reducing vulnerability and ensuring smooth operation. Some of the ways in which a firm can mitigate the above mentioned risks are :-
- Quality Check Systems – Firms need to devise a framework which will help them monitor quality at each stage of supply chain. These quality checks need to be conducted from raw material procurement till it is delivered to the customer.
- Optimize scheduling – Businesses must optimize their scheduling in order to reduce cost and improve efficiency. Scheduling procurement of raw materials efficiently ensures there is neither pile up of inventory nor shortage of inventory for production. This consequently reduces lead time between production and delivery of the goods to the end customer.
- Compliance Management – Organisations need to abide by many compliance in the supply chain. Non-compliance could not only attract legal action by the authorities but also by consumers. Non-compliance could also be at suppliers/distributors end which makes it all the more challenging for a firm to manage. However, firms also need to manage such compliance as the final responsibility lies with the firm. A compliance management system would help in managing and mitigating such risks.
- Supplier Management – Ramp new suppliers quickly to gain early insight into any risk factors that might hamper production, lead-times, initial performance, etc. Firms need to continuously monitor suppliers to avoid disruptions caused by bankruptcies, performance issues, ownership changes, labor strikes, geopolitical changes, etc. An IT solution is the best way to achieve such a level of monitoring.
Risk is and will always be inherent in the supply chain. Firms can reduce their exposure to risk by deploying a comprehensive and proactive risk management framework. This framework can be created by working closely with suppliers & distributors and defining a strategy based on mutual business goals. There are many IT solutions available that help firms effectively manage the risks associated with the supply chain. It is imperative for firms take measures to reduce the risk associated with the supply chain. If not mitigated, these risks can have catastrophic impact in short term and result in permanent closure of the business.Add to favorites