Supply chain risk management evaluates and mitigates internal and external risks in the supply chain. It involves assessing vulnerabilities, devising strategies, and calculating costs to ensure the company can continue earning. It begins before production and includes factors such as demand, financial stability, and personnel changes.
Supply chain risk management (SCRM) is a business practice in which professionals observe the supply chain and evaluate it for risk. Risk in the supply chain can be broad and can address internal or external risks. Unlike other risk management activities, risk management in the supply chain must be coordinated between managers and all aspects of the supply chain. SCRM is used to evaluate problems that need to be fixed or, in worst cases, when a product becomes too risky to produce.
Supply chain risk management begins before the product is manufactured. Risk managers need to assess the financial impacts that manifest themselves early on in supply chain problems. Managers also need to devise strategies to solve or alleviate these problems. This information is often reviewed before a product is lit for production.
On the external side, supply chain risk management looks at issues occurring outside the business. This includes the demand for the product, disturbances in other companies that manufacture the product, the financial stability of related businesses, and the condition of the supplier structure. To mitigate these issues, risk managers will often talk to the managers of the other facilities and companies and create strategies such as using backup companies to produce a product.
Internal supply chain risk management deals with the risk of the main company. Some of the risk factors are similar to external supply chain risk management, such as the manufacturing of the product if done by an internal subsidiary of the company. Other factors include management change or key personnel within the business or scheduling issues or lack of planning.
Supply chain risk management, for each potential problem, typically includes a list of possible vulnerabilities that the business will suffer. This allows managers to plan for scenarios that could shut down production. By knowing all the risks and vulnerabilities, you can plan ahead to alleviate otherwise devastating problems, allowing your business to continue earning.
In addition to assessing vulnerabilities and devising strategies, supply chain management must also calculate the cost of those strategies. For example, if one of the company’s manufacturers is unable to make the product, one potential strategy is to contact another manufacturer to make the product. This alleviates the supply problem, but the other manufacturer may charge more for production. Supply chain management needs to figure into this extra cost and ensure that, even with the change, the company can still make a profit.
Protect your devices with Threat Protection by NordVPN
