Posted May 17, 2023

Supply Chain Risk Management: What You Need to Succeed

Supply Chain Risk Management: What You Need to Succeed
By Gigi Tino

The supply chain industry is by nature a risky environment. Unexpected events can happen within supply chain companies or around them that can impact their operations. By managing risks effectively, supply chain businesses can mitigate the impact of disruptions and strengthen their supply chains for long-term success. In the light of recent global disruptions, supply chain companies are increasing their focus on risk management and finding talent to take on the challenge of the dynamic industry. The supply chain professional must be ever-vigilant in an industry that can see major changes day by day. The world can be an unpredictable place, but as a supply chain professional, you must do your best to plan, prepare and react to any and all disruptive events that can affect your business.

Supply chain risk management involves identifying, assessing, and mitigating risks and disruptions that can impact the flow of goods, services, and information within a supply chain. A supply chain disruption is any event or occurrence that interrupts or negatively affects the normal flow of goods, services, or information within a supply chain. It can disrupt the sourcing, production, transportation, or distribution processes, leading to delays, shortages, increased costs, or other adverse effects on the overall supply chain performance. Supply chain risk management involves analyzing your supply chain for the potential of these disruptions.

Supply chain disruptions can be attributed to both internal (company-based) and external (supplier, customer, or environment-related) risk factors. For example, an external factor could be geopolitical; that includes political instability, wars, trade disputes, sanctions, or changes in government regulations, and can disrupt supply chains by affecting transportation routes, import/export restrictions, or trade agreements. Supplier-related risks include financial difficulties, bankruptcy, production issues, or quality problems. These disruptions can result in delays in receiving raw materials, production bottlenecks, or even complete cessation of supplies. On the internal side, a risk with increasing concern in the digital age is cybersecurity. Cyberattacks on supply chain systems, networks, or information systems can compromise data integrity, disrupt operations, or lead to unauthorized access. This can result in disruptions in the company’s order processing, inventory management, or communication.

One infamous example of a supply chain disruption was the blockage of the Suez Canal in March 2021. This incident has become a textbook case study on supply chain disruptions, particularly in the global supply chain. The Ever Given, a massive container vessel, became stuck sideways in the canal due to strong winds and a sandstorm, preventing the passage of at least 367 other shipping vessels. This event resulted in increased shipping costs, a surge in freight rates, global bottlenecks, financial losses, and inventory imbalances. This incident highlighted the vulnerability of global supply chains to unforeseen disruptions and emphasized the need for effective risk management strategies and contingency plans to mitigate the impact of such events in the future.

The world is still recovering from the disruptions of previous years as the industry continues to encounter new risks and challenges. A supply chain professional with the knowledge to manage disruptions is extremely valuable! Gartner predicts that by 2025, supply chain risk management will be a key success driver for over 50% of organizations. Their 2021 Gartner Supply Chain Risk and Resilience Survey also revealed that 79% of large organizations are currently leaning into risk management. While supply chain risk management and disruption management are key to all supply chain positions, risk management itself has developed into its own specialized position.To effectively manage disruptions, supply chain professionals need a combination of technical skills, analytical abilities, and strategic thinking. Here are some key skills you will need to manage supply chain disruptions and succeed in your position:

  1. Relationship Management: Supplier risk management is often considered its own discipline within risk management. Building strong relationships with suppliers, vendors, and other stakeholders is crucial for managing disruptions. Effective communication, collaboration, and negotiation skills help establish resilient partnerships, enabling quick resolution of issues and the implementation of contingency plans when disruptions occur. It can also help with finding reliable and quick backup suppliers in the case of an emergency.
  2. Analytical Skills: Risk management is data-driven, like all aspects of supply chain, and requires a keen analytical mindset. Proficiency in data analysis, scenario planning, and forecasting techniques allows supply chain managers to detect patterns, identify potential risks, and make informed decisions. Many supply chain risk management strategies involve data analysis, including the common Prevention, Preparedness, Response, and Recovery (PPRR) method of risk assessment and management.
  3. Technological Proficiency: Technology and new software are growing more and more crucial to supply chain visibility. Having real-time visibility into the entire supply chain is essential for early detection of potential disruptions. Transparency is key for monitoring inventory levels, tracking shipments, improving practices, and identifying bottlenecks or vulnerabilities. Develop skills in various supply chain management systems, data analytics tools, and emerging technologies like Internet of Things (IoT) sensors.
  4. Crisis Management: Even with the best planning, disruptions can still occur unexpectedly- that’s just how the world is! You may plan for every possible risk you find in your internal assessments, but events such as the aforementioned Suez Canal Blockage or natural disasters can still arise without warning. Crisis management is key to overcoming inevitable disruption events. In the event of disruptions, you need to be able to make quick decisions to implement contingency plans. Flexibility and a level head will be crucial to making the right decisions and developing effective response strategies.
  5. Regulatory Knowledge: It is crucial for you to know the various environments your supply chain is operating in, especially in global markets. Legal and ethical compliance is necessary during disruptions and developing a management plan. It is also important to be up-to-date on upcoming regulatory changes from the industry to government levels, as even these changes can serve as disruptions. Know your markets, know your regulatory environment, and know global events.

The supply chain industry will always be full of risk, and companies in the industry are taking a more proactive approach in managing it. A supply chain professional that can effectively manage risks and respond to disruptions is highly desirable to industry employers. By possessing these skills and competencies, supply chain professionals can effectively identify, mitigate, and manage disruptions, thereby minimizing the impact on the overall supply chain performance and ensuring business continuity.