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Supply chain risk management: What you need to know

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This guide outlines the crucial and fundamental aspects of supply chain risk management, in simple terms. In the aftermath of the recent worldwide pandemic, running a business is an even riskier venture than ever before. Knowing who your vendors are and the status of your supply chain are paramount to success in a post-COVID world. Understanding the risks associated with the supply chain, how to assess spend risk and selecting a reputable vendor are all increasingly important concerns for your operation.

Thankfully, there are ample solutions to the problem of vendor and supply chain risk management. The ideal solution is to find a service that will not only provide insight into risk management at every step of the process, but give you peace of mind and security in how you manage vendor/supply risk in your organization.

Supply chain risk management: overview

As you know, the supply chain represents the set of important steps, analyzes and decisions for the production cycle. In other words, the chain encompasses all operational stages in the formatting of a product, starting from the acquisition of raw material to delivery to the final consumer.

Due to this dimension and its intermediate phases, such as negotiating with suppliers, manufacturing details and freight circumstances, it is increasingly important to apply the concept of risk management to your processes, identifying what can go wrong and taking steps to avoid and work around the problems.

After all, that is exactly what supply chain risk management is all about: planning, anticipating, analyzing, acting and monitoring. Conceptually, it is as if risk management were a kind of preventive maintenance , in which routines are observed to find vulnerabilities and, thus, apply solutions before a certain situation happens.

For everything to run smoothly, supply chain risk management needs to be supported by a clear and objective methodology for each of these steps. Thus, it becomes easier to understand the problems, such as the lack of a certain input, and employ the solutions, with the strategic and anticipated purchase of this product.

In addition, it’s also important to understand the main types of risks that threaten your supply chain’s productivity. As we see it, the most common are:

Competitive risk — inherent in your competition and in the strategies that competitors adopt to conquer the market;
Economic risk — correlated to the health of your cash, in which scarcity can immobilize your purchases and processes in your cycle;
Geographic risk — represented by weather events and natural disasters that directly impact the stages of its cycle, whether in terms of supply, production or transport ;
Risk of negligence — when the operation ignores planning, operating without reserve margins and not preparing for periods of high demand;
political risk — when some tension or political change interferes in one of its stages, as in the case of trade wars and specific taxes on commodities (such as steel).

The importance of supply chain risk management

Considering the impact of the aforementioned risks, it is already possible to have an initial notion of the importance of adopting management measures. To make this scenario even clearer, we’ve gathered below the main benefits of this process for your operation. Look!

Meet requirements

As you know, logistics is a relatively bureaucratic sector, full of technicalities and certifications. In this context, risk management observes these requirements, making sure that everything is in order and, thus, avoiding the downtime of the chain .

Avoid losses

The purpose of supply chain risk management planning is to avoid waste , repetition of processes, idleness, damage to the company’s image, increased hours worked and the general loss of values ​​— whether due to a decrease in services rendered or a drop in sales figures. Therefore, risk management is a fundamental tactic for the company’s financial stability .

Ensure productivity

Productivity depends on the efficiency of the strategies developed in the management . If the solutions are poorly thought out, nothing will work and, therefore, the operation will continue to be subject to various risks.

This effectiveness of actions is obtained through approaches that try to keep the team and productive capacity fully occupied. In other words, doing everything possible in terms of inventory, people and vehicles to keep the operation running, with maximum dedication to be able to honor production and delivery contracts .

Maintain satisfaction

As in a cascade effect, as a result of all efforts to achieve the above benefits, its operation manages to sustain consumer satisfaction, crossing the risk period without exceeding the established deadlines or harming the company’s image.

Supply chain risk management strategies

There are key features worth looking for in supply chain risk management services that will ensure the ideal fit to your needs.

Recommendations and risk scoring

Poor supply chain risk management is caused by a variety of issues. You may end up spending more on a certain supplier or worse. A centralized, easy use vendor evaluation method is necessary to mitigate the problem and simplify your workload.

Knowing a supplier’s key performance indicators (KPI) can give you a wealth of information about your current relationship with the supplier and help you develop a strategic relationship with them in the future. This is where risk scoring helps cut redundancy and other issues while giving you a tactical advantage when it comes to vendor evaluation. Risk scoring is a major component of good supply chain risk management. When a potential risk score is assigned to a particular vendor based on their history and actions, it becomes part of a multidimensional, constantly shifting risk assessment dynamic.

Good supply chain risk management software compiles the data and recommends responses or actions to take based on supplier data and patterns. If the system notices a pattern of negative behavior, it’ll automatically make recommendations from putting spending on hold for that supplier to moving to another supplier entirely.

Visible spend risk

Assessing spend risk and vendor management manually ends up costing more in the long run. You or your staff don’t need to spend all their valuable time chasing suppliers or dealing with bad supplier behavior. Reliability data and real-time visibility of all risks associated with spend provide a powerful weapon in your risk assessment arsenal.

A visual representation of recent spend and how it compares to past spending helps reduce maverick spend issues, vendor problems and potential disruptions in your company’s supply chain. With good software, you can quickly access vendor requests, approvals, payments, invoices and purchase information.

Well developed risk ratings

One of the best applications of a vendor management and supply chain risk management software is the ability to dynamically score a supplier/vendor based on how they’ve behaved in the past, the quality of their service and a summary of third-party data about that supplier. The software performs an assessment often, rather than occasionally as many corporations do.

You can easily vet critical vendors based on risk assessment and easily replace a critical vendor who may also present a high risk. Software with dynamic risk ratings removes the guesswork. Access and assessment of a vendor based on restricted party and various other risks or risky behavior is another key component and covered by most software solutions. Each risk rating is meticulously compiled to give you all the information you need to prevent supplier issues at the source.

Transaction control

Duplicate payments, rogue spending and over-charging are no longer issues when you can instantly take control over them. If a vendor presents risky behavior, it should be simple to take swift action and maintain control over the situation. Stopping a PO or invoice in real time is not only possible with supplier management, it’s easy to find a substitution based on the software’s recommendations. It’ll recommend everything from stopping payment to selecting an alternate vendor based on data specific to your organization.

Conclusion

Searching for a good vsupply chain risk management system is challenging, but is necessary to manage supply chain and vendor risk. With an intuitive interface, detailed reports and a number of built-in features applying to risk management/control, this is what you need when it comes to vendor risk management software solutions. Take control of your supply chain risk management now and it’ll lead to a brighter future for your business, vendors and customers alike.

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Our women don’t want to settle for anything but the best. They understand that success is a journey involving personal growth, savvy optimism and the tenacity to be the best. We believe in pragmatism, having fun, hard-work and sharing inspiration. LinkedIn

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