IT Certification

How to Manage Risk in the Supply Chain

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Risk management is mandatory for any company that seeks to ensure continuity and achieve long-term success. Supply-chain risk management involves mitigation of both exceptional and everyday risks, with the goal of reducing related costs, minimizing inconvenience, and boosting company profits. It takes into consideration all aspects of a business, from finance and logistics to information technology.

Businesses with poor risk-management strategies make themselves vulnerable to going out of business, due to the inability to bounce back after risk exposure. Companies need to put into place reliable solutions that allow them to prepare for any eventuality. Following are a few recommended measures for managing risk in the supply chain.

Identify and prioritize risks. The first step in effectively dealing with any supply-chain disruption is identifying the risks that exist. While numerous internal and external risks can wreak havoc on operations, you need to break down every step of your supply chain to identify in detail what could go wrong. This means examining all nodes, including production, suppliers, transport and warehousing. Identify risks that could affect the price, quality and delivery of your products, as well as the reputation of your company.

Document and prioritize risks depending on how likely they are to happen, as well as their resulting impact. You can establish the probability of risk occurrence using past or forecasting data, or information from insurance companies relating to businesses in your field. Then come up with a prevention and mitigation strategy, starting with the one that’s most likely to occur and has the greatest potential impact on your business.

Create risk awareness in your company. Information is power, and having employees with the right knowledge about supply-chain risks puts your company in a better position to deal with known and unknown risks. With this in mind, you need to create a risk-aware culture in your business, by carrying out employee training and sensitization regarding such risks.

Critical information your staff should know includes the common risks and challenges facing your supply chain, best practices for managing risks, and training on how to use risk-assessment software. Such knowledge empowers your staff to be proactive and responsive when preventing and reacting to both internal and external changes.

Create an environment that encourages openness, accountability, and respect. Your staff should be able to communicate and share any potential risks, and report bad news without fear. They should also take responsibility for their mistakes without feeling discouraged. This allows your staff to learn from their mistakes. An environment that fosters respect means that employees will be careful not to take risks for personal gain at the expense of the company.

Strengthen cybersecurity defenses. In the digital era, almost every company has its operations online. While going digital boosts your supply chain’s efficiency, it also puts you at risk of cybercrime. Cybersecurity threats such as ransomware and malware, hacking, and phishing attacks can disrupt your business operations, leading to huge losses.

To strengthen your company’s cybersecurity, you need to involve both your I.T. department and the rest of your employees. Below are some measures you can use to beef up your security and manage supply chain risks.

  • Put in place policies and compliance standards that all parties in your supply chain, including your suppliers, manufacturers and distributors, should follow.
  • Divide up roles by not allowing one person to have too much control. Also, define who can access your systems and data, and what they can do with the information.
  • Carry out employee cybersecurity training, so they don’t fall for traps set by cybercriminals.
  • Create a backup plan that will ensure your operations don’t stop in case of a security breach.
  • Keep your software updated and utilize security tools such as VPN, antivirus, and firewall. You can also consider network access control as well as domain name system (DNS) filtering for more security.

Take up insurance. As part of a strategy to ensure continuity of your supply chain, an insurance policy is critical. Not only does it protect you from financial and legal liabilities that may arise due to your inability to honor contractual agreements, it also protects your bottom line and shields you from losses as a result of supply-chain disruption.

With insurance, you’re in a better position to bounce back from any risk exposure without experiencing losses or putting your company’s image at risk. Some critical covers you should consider include trade-credit and cargo insurance.

Trade-credit insurance protects you from non-paying or slow-paying customers. It also allows you to free up capital and get better financing terms from lenders. Cargo insurance protects your goods in transit and storage from damage or loss regardless of the carrier. Ensure that your suppliers also hold certificates of insurance, along with any third parties that they work with.

Perform due diligence when choosing your suppliers. One way to manage supply-chain risk is to have an in-depth understanding of your suppliers before contracting them. This allows you to build better working relationships and minimize your vulnerability to risks.

Before signing the contract, check the financial stability and viability of each supplier. Doing so protects you from external business risks that come with your supplier going bankrupt. You can obtain your suppliers’ financial stability information from credit-rating agencies, instead of only relying on the financial reports the suppliers present to you.

In addition to financial viability, consider factors such as quality of goods, compliance with regulations, and how your suppliers treat their partners and employees. Doing this up front confirms supplier quality and reduces related supply-chain risks.

Relying on one supplier makes you vulnerable to risks caused by unfavorable economic or political environment affecting that vendor. It’s advisable to diversify suppliers by sourcing materials from various entities. This way, the failure of one supplier won’t have as severe an impact on your supply chain.

Conduct regular reviews. The best way to strengthen your supply-chain risk management lies in constant monitoring. Review your strategies regularly, to learn what works and what needs to be improved. Don’t assume that you’re safe after implementing a risk-management strategy.

Develop a monitoring system that covers the entire supply chain, and notifies you of any risk indicators, deviations, or disruptions. This can be done with digital tools that automate monitoring. They make it easy to streamline the various aspects of your supply chain. An effective monitoring system facilitates quick response and allows for better planning. Always ensure that you adjust your approaches according to changes in supply risk.

While supply-chain risks may be inevitable, the above tips will help you to handle potential risk effectively, bounce back from any disruption, and achieve long-term growth.

Angela Sanderson is a content writer with Eleven Fifty Academy.

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