Effective supply chain risk management, also commonly abbreviated as SCRM, is essential to the success of an organization. New technologies have made the world a smaller place and extended supply chains. This can reduce overall costs and produce a better product, but have also introduced risks. The challenges of the past decades have presented companies with demanding supply chain challenges. Natural disasters and economic downturns can cause supply chains to stretch to their breaking point.
Supply chain risk can be defined as the possibility of any unforeseen events at any place along the supply chain which has a negative effect on the supply chain. So supply chain risk management must plan to mitigate and limit any of those risks.
The intricacy and delicate nature of supply chains demand detailed and responsive risk management solutions. Unfortunately, many companies wait for a crisis they can only respond to instead of developing a proactive plan. This is often a result of managers who are caught in the middle between operations, costs, and revenue growth.
Just some of the most common supply chain problems are:
- Shipping delays
- Supplier delays
- Problems with production
- Cyber security
- Storage and containment shortages
- Theft of resources which delay production
- Customer changes
Recent events are just another example of the unforeseen risks that can disrupt a supply chain. The 2004 Boxing Day tsunami and the 2011 Japan earthquake and tsunami severely disrupted world-wide supply chains. These are only single incidents.
Other times it’s several small changes. Sometimes regulatory or trade laws changes by a government can have a cumulative effect over time of endangering the efficiency of the supply chain. Proper supply chain risk management will identify both internal and external, and singular or cumulative risks. It will follow standard risk assessment, development of a plan, and implementations of solutions, all while ensuring proper follow-up.