An Introduction to Supply Chain Risk Management

Shortened to SCRM, Supply Chain Risk Management is a systematic approach to managing supply chain risk that identifies susceptibilities, vulnerabilities, and threats throughout the supply chain and develops mitigation strategies to combat those threats, whether presented by the supplier, the supplier's product, and its subcomponents, or the supply chain itself.

A Supply Chain Refresher

We'll begin with the supply chain itself, which is the initial component of SCRM. A supply chain is a network that links a company and its suppliers in order to create and distribute a product to the end consumer.

This network is made up of numerous activities, persons, entities, data, and resources. The supply chain also represents the steps involved in delivering a product or service from its starting state to the client.

Who Is Involved in the Supply Chain?

A supply chain is a series of steps that must be taken in order to offer a product or service to a customer. Among the operations are moving and processing raw resources, shipping such products, and distributing them to ultimate consumers.

The supply chain includes producers, suppliers, warehouses, transportation companies, distribution hubs, and retailers.

What Constitutes a Supply Chain?

The elements of a supply chain include all of the functions that begin with receiving an order and conclude with serving the customer's request. These activities include product creation, marketing, operations, distribution networks, finance, and customer service.

The Role of SCRM in Supply Chains

Supply Chain Risk Management is an important part of the business process. SCRM contains various linkages that need knowledge and experience.

When SCRM is implemented appropriately, it has the potential to lower a company's total expenditures while enhancing profitability. If one link breaks, it can have a negative impact on the rest of the chain and be costly.

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It’s no wonder that 89% of enterprises are focusing on supply chain planning for 2022, according to a survey by APQC.

Two Major Supply Chain Risks

Two of the biggest risks that present challenges to modern supply chains are disruption and demand planning/forecasting risks.

Risk of Disruption

Disruptions are defined as external and macro-level occurrences that disrupt a supply chain. Natural catastrophes, geopolitical events, and pandemics are a few examples of macro-level event types that can disrupt supply chains.

While disruptive occurrences are rare, they can create considerable delays in business continuity. A lightning strike, for example, caused a manufacturing fire at Royal Philips Electronics (a Nokia producer) in March 2000, damaging millions of microchips.

Despite this, Nokia's output decreased minimally as a result of its multiple-supplier strategy and reactivity. However, Ericsson, another mobile phone customer of the Philips facility, faced substantial interruption owing to a lack of alternative sources for microchips.

This example emphasizes the need for an SCRM system that allows businesses to multisource their products and avoid being overly reliant on a single supplier/manufacturer.

Z2Data's Supply Chain Watch provides insight into possible alternative parts acquired from multiple vendors, as well as mapping out your supply chain down to the sub-tier level.

Even if a disruption occurred at a lower-tier supplier (which you may not be aware of), you would be warned and aided in proactively commencing a shift to other production facilities, suppliers, or products.

Demand Planning and Forecasting Risk

Evaluating demand and forecasting risks is the top priority for enterprises heading into 2022, according to APQC.

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Forecasting allows businesses to correctly evaluate the market and examine their supply chain in relation to market demands. Companies that do not use specialized supply chain forecasting face the risk of incorrectly estimating demand and either over-or under-supplying the market. Inaccurate forecasting of internal product lifecycles also contributes to forecasting hazards.

Any slight change in demand can cause a significant shift in supply. If you lack a flexible supply chain (from a production viewpoint, this implies you can acquire a big volume of goods relatively rapidly. If you have duplicate providers (i.e., redundant demand projections) or exceptionally precise demand forecasts, your supply is vulnerable to the "bullwhip effect." When customer demand looks consistent, but demand unpredictability increases as you travel farther up the supply chain, the bullwhip effect emerges.

To lessen the risk of erroneous projections, one potential solution to forecast hazards is to boost production, order fulfillment, and product lifecycle responsiveness.