Monday, October 2, 2023

Best Strategies for Supply Chain Risk Management

By Nikhil Sonawane - June 23, 2023 6 Mins Read

Best Strategies for Supply Chain Risk Management

Supply chain business leaders always work with risk in today’s world. Managing and forecasting supply chain risks and threats has become a top priority.

The recent Covid-19 pandemic disrupted global supply chains.

In March 2021, a container ship of Ever Given blocked the Suez Canal for six days. It led to one of the biggest disruptions in the global shipping industry. Multiple other reasons expose the supply chain to various risks. Modern enterprises need the best supply chain management strategies to reduce risk.

In this article, let’s explore the most common supply chain risks and the best ways to overcome them:

Supply Chain Risk Management

Supply chain risk management is a process for businesses to make strategic decisions to detect, evaluate, and eliminate risks within their supply chain. 

Modern supply chains have both internal and external risks. These risks can disrupt business continuity and have disastrous consequences. Decision-makers must understand the difference between them.

  • External Supply Chain Risks

Businesses get exposed to external supply chain risks from a third party. Hence, they are difficult to predict and need more resources to minimize the threats. Here is a list of top external supply chain risks that leaders should be aware of:

1. Demand Risk

Organizations that have a miscalculation of the product demand lead to demand risks. One of the significant reasons why this happens is a lack of insight into previous purchasing trends. An unpredictable rise in demand can also expose the supply chain to various demand risks.

2. Supply Risks

Disruption in the supply of raw materials will lead to supply risks. It leads to significant disruption in product flow or manufacturing operations.

3. Environmental Risks

Environmental, social-economic, or political challenges lead to environmental risk in the supply chain. It directly impacts the timing and other aspects of the distribution chain.

4. Organizational Risks

Supply chains get exposed to such risks when unpredicted changes happen with one of the third parties the business relies on to ensure smooth operations.

  • Internal Supply Chain Risks

Internal supply chain risk occurs due to factors within the organization’s control. Businesses can use supply chain risk assessment tools, advanced analytics solutions, Internet of Things (IoT) capabilities, and other technologies to identify and track internal risks.

Even though internal supply chain risks are unavoidable, they are still more manageable than external risks. Here’s what supply chain leaders need to look for:

1. Production Risks

Businesses get exposed to manufacturing risks because of disruption in key operational areas. It leads to operations going off the manufacturing schedule resulting in delays.

2. Planning and Control Risks

Inaccurate supply chain predictions and evaluations can expose planning and control risks. Ineffectively planned manufacturing and management can also expose these supply chain risks.

3. Mitigation and Contingency Risks

Enterprises lacking an efficient contingency plan to manage supply chain disruptions have mitigation and contingency risks.

Businesses must have a holistic view of the potential supply chain risk factors. Businesses must have a strategic plan to overcome the potential disruptions.

Evaluating the entire supply chain, from procurement to delivery, will help. Decision-makers need to understand the potential issues that might arise. This approach is an effective way to implement a data-driven strategy to mitigate threats.

Today’s marketplace has multiple technologies that offer real-time visibility into products in the supply chain. These tools help businesses to detect potential risk factors.

For instance, implementing predictive and prescriptive analytics tools will help to transform previous data into valuable business insights. Businesses can even utilize APIs to extract data and update statuses from third-party vendors and suppliers to get a real-time holistic view of the supply chain.

Best Strategies for Managing Supply Chain Risk

In a hyper-connected digital world, eliminating supply chain risk can be challenging. The difficulty increases because of globalization and other potential cyber issues. Here are a few ways to mitigate supply chain risks:

1. Adopt a PPRR Risk Management Framework

Businesses can embrace a Prevention, Preparedness, Response, and Recovery (PPRR) approach. It is one of the most preferred global approaches for managing supply chain risk.

  • Modern enterprises need to take proactive preventive measures to mitigate supply chain risk.
  • Furthermore, a contingency plan should be ready to ensure preparedness during an emergency.
  • At the response stage, businesses should be able to Execute the contingency plan. The response stage is crucial to minimize the impact of the disruptive event.
  • Enterprises should have an efficient Recovery approach. Enforcing a strategic recovery plan will help resume business operations at their normal capacity as soon as possible.

Also Read: Strengthening Supply Chain in 2023: Leaders Anticipate Challenges to Degrade

2. Optimize the Cyber Supply Chain Risk Management

Modern businesses tremendously rely on the Internet of Things and other advanced technologies to enhance supply chain operations. Irrespective of the tremendous benefits of these tools, they have some inherent risks it exposes businesses to.

These technologies expose supply chains to cybersecurity threats, like supply chain attacks through malware, ransomware, or phishing. Following are a few ways to improve supply chain cybersecurity:

  • Designing and enforcing compliance standards for all third-party vendors is essential. Businesses must have stringent compliance strategies for all manufacturers, suppliers, and distributors.
  • Decision-makers can clearly define user roles and enforce security controls to limit system access. Moreover, it is crucial to define what responsibilities or privileges they have clearly.
  • Business leaders need to execute a thorough vendor risk evaluation before signing contracts.
  • It is crucial to set clear data ownership responsibilities to define who owns what data and what they can do with it.
  • Offer cohesive training for all resources about supply chain cybersecurity protocols.
  • Implementing a tool that offers better visibility in the entire supply chain. These tools should be able to identify suspicious activities.
  • Decision makers should work with all the vendors in the supply chain network to design a centralized disaster recovery strategy for business continuity.
  • Set backup controls to secure the data backups.
  • IT teams must regularly update the organization’s anti-virus, anti-spyware, and firewall tools.
  • Moreover, SecOps teams must explore the market for better cybersecurity measures like DNS filtering and network access control.

Supply chain business leaders need to track the potential supply chain risks. Decision-makers should implement the best strategies to reduce the risks in their supply chain.

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Nikhil Sonawane

Nikhil Sonawane is a Tech Journalist with OnDot Media. He has 4+ years of technical expertise in drafting content strategies for Blockchain, Supply Chain Management, Artificial Intelligence, and IoT. His Commitment to ongoing learning and improvement helps him to deliver thought-provoking insights and analysis on complex technologies and tools that are revolutionizing modern enterprises. He brings his eye for editorial detail and keen sense of language skills to every article he writes. If he is not working, he will be found on treks, walking in forests, or swimming in the ocean.

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