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Managing Supply Chain Risk

How to mitigate against risks to global supply chains

30Apr

With a global supply chain comes global risks to that chain, and managing it is no small task. Getting a network of companies to coordinate is a difficult process as it is, and when language differences, currency fluctuations, and the myriad of other unforeseen circumstance that could occur are added into the mix, it becomes all the harder.

More often than not, however, it takes a crisis to call a firm into action. By this time it is too late and the damage has been done, causing potentially massive financial damage.

In order for a company to best manage the risks to their supply chain, there are a number of things that they should ensure are in place.

Firstly, there must be a clear risk management framework implemented. This requires a formal documented process, detailing an effective strategy and structure as to how risk can be identified, assessed, quantified, and mitigated. There must be backup plans in place if, for example, a factory or distribution centre is forced to close. A survey conducted by the Global Supply Chain Institute found that a massive 47% had no contingencies in place for such an eventuality.

The strategy developed must carefully prioritize risks. Local knowledge is vital in doing this, as it helps to gain a more thorough idea of what the potential risks could be. Local knowledge also allows you a full insight into the supplier's business practices, and the relationships that exist between them and various other firms which could have an impact on the supply chain.

Also key to mitigating risk to the supply chain is the creation of a risk culture. In order for a corporation to be in a position to fully mitigate against risks to its supply chain, it must have all its employees fully cooperating with its risk strategy, not just the risk function itself.

The creation of a holistic attitude towards risk is vital, though it is difficult to achieve and may require examination under stress before it becomes clear that it has been fully implemented. Often, this requires employees to be incentivized to consider risk in their actions, and, on the other side of the coin, to be held fully accountable for any mistakes that put it in danger. Properly rewarding executives to rigorously manage risks in their day-to-day work is central to getting everyone in the firm to work together.

It is also vital in building such a culture that risk awareness is fully integrated into a company’s decision making processes and that governance is embedded into core processes. More so than that this, the processes set out and the culture put in place should not be allowed to stagnate. They should be continually refined in order to reflect various changes in business strategy and external events, ensuring that any problems that arise are swiftly dealt with.

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