Supply Chain Risk Management brings Resilient SCs
You can read this article in 4 minutes
With disruptions impacting SCs more often, it will be difficult to recoup to a prior-disruption state, so the resilient Supply Chain (SC) definition will need to change. Somewhat, resilient SCs of the future should have the capacity to constantly transform into new contexts that facilitate them to function repeatedly under the new temporary conditions prevailing post-disruption.
We have two concepts quite related to Risk
· The Supply Chain Risk Management (SCRM) that directs all its efforts to identify risk and plan accurate measures to deal with it.
· The Resilient Supply Chain outlines to what degree an organisation can endure disruptions and rapidly pull through from disrupting events, happily coming out sturdier than before.
Continuously altering the SC results on frequent occurring events that are external to SCM under ‘normal’ conditions, including:
- Unpredictability and fluctuations in demand, quality, supply and costs, causing extreme and very short-term imbalances.
- Complete and temporary shutdowns of whole nodules or even groups of nodes
- The collapse of infrastructural parts, for instance, the transportation capacity.
- Uncommonly short-term amendments to the officially permitted framework.
What do SCM and SCRM do to leverage the requirement of completely conflicting strengths in the SC?
- Efficiency, hence productivity, measures up resiliency essentials, like responsiveness and elasticity.
- Advanced digitisation for more, faster, accurate information to struggling against cybersecurity.
Defining risk and applicable responses
With the ISO 31000:2018 standard, most frameworks outline risk management as the repeated conduct of probability, impact and source steps; related to SCRM; these steps should cover all SC material elements and link up the analysis to suppliers and customers.
Identification of risks
All the pinpoint risks to the SC operation are depicted in a 'risk register.' The general tactic to set apart risks is to group them by probability, impact and source. However, calculating the likelihood of HILP events is very challenging; to balance this ambiguity, and at least heighten the connection of the risk to its SC impact, proposes adding two more elements to the crowding scheme: predictability, and source, as follows:
- The probability element expected, for instance, sea-level rise vs a not likely event, such as a heavy seismic activity in the Sahara.
- Contrast the high impact event, such as sea-level increase vs low implications, when talking about a local flood.
- Source: external event-driven like strikes, natural disasters, geopolitical risks vs internal sourcing dependencies, demand concentration, capacity constraints, currency vulnerability.
- Timing: high vs low.
- Scope of impact: broad (a pandemics) vs narrow (forest fires.)
- Period of impact: long vs short (storms.)
- Frequency: high (labour strikes) vs low (seismic activity.)
Evaluation of identified risks
The identified risks are evaluated, ranked and prioritised using different methods or vulnerability maps:
- To evaluate the risk seriousness impact.
- To have the ability to mitigate or reduce risk.
- Acceptability: the degree to which the risk is acceptable in various terms (political, environmental, social, economic.)
- The evaluation of risk probability and the speed to act accordingly.
- To consider potential risk expanding in impact or increasing the probability to happen.
After we identify and evaluate the risks, how do we determine them for an appropriate response?
- Whenever possible, determine the root causing the risk.
- Another option is to transfer part of the risk to another party, for instance, a financial risk to an insurance company.
- Take the measures to reduce the likelihood of the risk and ease its impact in occurrence.
- Estimate the risk level and its would-be repercussions, so it will not require further action.
- Plan the concrete steps for each response and communicated them to all concerned parties in the ‘business continuity plans.’
- Report any relevant risk information regularly to all partakers.
- Regularly repeat all the above process steps to update data.
CONCLUSION: Modern Supply Chain networks are complex, and their components are highly interdependent. Resiliency and risk analyses – and selecting effective responses to identified risk scenarios – must be supported with Advanced Analytics.
Is your Supply Chain ready to build a more resilient culture?