Risk management traditionally focuses on tangible assets and related liabilities. Supply chain risk management focuses on both assets and processes as part of a comprehensive solution. Organizations do not exist in a vacuum, and as their business environment grows, so does their risk profile. It’s incumbent upon these companies to reduce risks with a smart mitigation plan. This is why a savvy risk manager is essential for any supply chain.
Supply Chain Risk Manager Basics
There are three objectives that every risk manager focuses on. They are:
- Identifying and prioritizing critical business elements
- Mapping the entire supply chain to show interdependencies
- Identifying potential failure points along the supply chain
A supply chain is made up of several components, like procurement, logistics, storage, and more. The risk manager assesses these components for how they raise the risk profile of the supply chain. Then the assessment is communicated to leadership and functional supply chain managers allowing them to take an active role in the supply chain risk management process. As such, while the risk manager is an integral role in and of itself, he or she creates and relies on “operational risk managers”.
Risk managers will also rely on different analytical tools, such as value prioritization and gap analysis. These tools allow the risk manager to apply risk-scoring to various supplier, vendor, and contractor locations that expose supply chain processes to risk. Through this continual audit of the supply chain, the risk manager can plan recovery scenarios based on actual data to help increase the supply chain’s resiliency.
Ultimately, the risk manager wants to create a culture of risk awareness within the extended organization. This means reaching out to the very top of leadership as well as to the department heads across the entire supply chain. When all parts of the organization and its partners measure their processes by risk, that practice can only help lower the overall risk profile of the supply chain.
Risk as a Priority in Supply Chains
Generally, organizations all have similar risk concerns: supplier failure and continuity of supply. When disruptions occur in one part of the supply chain it can lead to catastrophe in another part. This leads to more specific business concerns, like regulatory compliance, brand and reputation damage, and sustainability issues. For these reasons as well as the uncertainty that comes with various processes across modern supply chains, senior leaders are viewing risk management with increased value.
This development has created a greater demand for identifying, measuring, and funding risk mitigation to prevent losses due to a disruption. As such, the risk manager role becomes even more vital as he or she develops plans and responses to risks across the supply chain. To succeed, the risk manager must evangelize and enforce risk management practices at all mission-critical points by teaching risk mitigating techniques to the appropriate personnel, like supply chain managers, who can make better decisions about processes that expose the supply chain to risk.
As an example, supply chain managers may decide on using just-in-time inventory, which is riskier than having extra inventory stored away in case of a supplier disruption. Other decisions may include choosing between discount and quality vendors, choosing between a single, high-volume source or multiple sources, and choosing between fewer high-volume distributors or more lower-volume distributors. With risk management techniques, these supply chain managers have more skills and data to make better informed decisions that affect the rest of the supply chain.
Risk managers are at the heart of the supply chain, taking the time and effort to familiarize themselves with all the components that drive critical business processes. As a result, risk managers can influence risk decisions made within key areas of the supply chain. Risk managers can improve their chance of success by leveraging technology improve processes, centralize data and provide real-time analysis.
Avetta helps supply chain risk managers all over the world identify and mitigate risk through prequalification, document management, auditing, employee-level qualification and training, insurance verification, and business intelligence.
Learn more at https://www.avetta.com/clients/risk-management