Due to globalization, thinking about the security and resilience of the supply chain, anticipating risks, is becoming the focus of the business strategies of modern companies.
After almost two years of crisis caused by the Covid-19 pandemic, risk management is gaining relevance to avoid serious interruptions in the supply chain, by allowing more efficient management of the supplier network, customer demands and competitors.
Supply chain risks are all events that can negatively impact a manufacturing operation – transportation, lack of inputs, delays in delivery – and that can be caused by financial, meteorological, health problems, natural disasters, among others, that can cause disruptions throughout the supply chain.
Objectives of supply chain risk management
While global supply chains have brought many benefits to businesses, they also bring risks if not managed correctly. Therefore, understanding how to anticipate these risks It is essential to know how to act to avoid them.
Traditionally, risk management was considered as part of the financial area processes. However, this view no longer applies to modern companies, as it is important that all levels of the company participate in supply chain risk management, as these risks imply problems that impact all areas.
Furthermore, efficient risk management increases the company's ability to maintain operational continuity without compromising product delivery and customer experience.
Steps to anticipate risks
The challenge for companies is to balance production with customer expectations and deal with possible vulnerabilities of your supply chain. To do this, some steps must be followed.
Identify the risk
Identifying the potential risks that the company faces is the first step to anticipating problems. Risks need to be classified – operational, demand, supply, etc. – and the probability of their occurrence must be measured.
This analysis allows mapping of possible vulnerabilities and weaknesses across the entire supply chain, including the origin of inputs, supplier facilities and transportation.
Risk analysis
Risk analysis guides the strategies implemented to define scenarios and the level of impact on business. A scorecard details the risk profile of suppliers and helps to classify individual risks.
Depending on a supplier's level of exposure, the company may seek new sources of supply in order to maintain stocks at safe levels.
Risk assessment
Risk assessment analyzes the probability and impact of a risk occurring. In other words, it is necessary to analyze the uncertainties of supply and demand and measure them to have a realistic view of the impact.
By combining probability and impact values, it is possible to create a risk assessment matrix and forecast the resources needed – human, technical and financial – to minimize the result.
Risk management
Having a strategy to manage and reduce risks is essential for a company to prepare for future uncertainties and know what to do when something goes wrong. To do this, it is necessary to create different logistics approaches, such as choosing to look for suppliers closer to the company, rather than the one offering the lowest price.
Monitor the risk
No risk management strategy is successful without active monitoring of supply chain risks. This is necessary because circumstances change rapidly and the strategy needs to adapt to these changes quickly.
Supply chain risk management plan
The plan is a tool that helps companies identify and assess potential risks, estimate the likelihood of them occurring and their impact.
The first step is to conduct a risk analysis that identifies, documents, and prioritizes potential risks and how they could impact the business. Then, it is necessary to define possible scenarios and outcomes.
The next step is to assign roles and responsibilities among areas and employees and determine a specific strategy to act in advance in the event of alerts being triggered.
A contingency plan should be created to minimize the impact of high-priority risks. This plan should also map out the workflow and resources that can be used in the event of emergencies.
It is necessary to understand that risks need to be shared with suppliers, so it is essential to detail what these risks are, which areas will be affected and determine the level of risk that each supplier must assume.
Finally, the risk management plan needs to be reviewed and updated regularly and should involve employees, partners, customers and even external experts.
Data is essential to reduce risks in the supply chain and COSTDRIVERS has a complete platform for supplier management. Learn how to reduce costs and risks and make projections strategically. Talk to one of our experts.