Supply chain risk is defined as the probability of an incident occurring with inbound supply, whether it is individual suppliers within a chain or external circumstances affecting that supply market. Key management strategies should be used in reference to both external and internal risks and is dependent on the organization’s efforts in monitoring and mitigating the threats that come within the end-to-end process. The volatility that COVID-19 swept in forced regulatory changes and urged industries to re-evaluate their global supply chains and risk management strategies.
With an evolving supply chain comes the need for better processes in identifying and managing risks. This also requires significant time invested by organisations in assessing the full scope of both internal and external risks. Organisations have previously struggled to assess risk beyond the primary companies they interact with, and would need to look to external issues/incidents that may occur -the scope for a pandemic clearly now being registered as a future concern. Neglecting the process of identifying risks alone would create a culture of fear and failure within a company, resulting in delays, or failing to acknowledge or confront the problems within the business.
McKenzie’s practical approach to supply chain risk management provides three areas in which public and private sector organisations have struggled to progress with regards to managing risk. These were; supply base transparency, identifying the scope and scale of possible risks, and the proprietary data restrictions that impede progress.
Procurement Leaders, the world’s largest procurement network, defines five major risk areas that would disrupt the flow of a supply chain. These are; price risk, quality risk, delivery risk, legal risk and reputational risk. The key here is to focus on the actions of the suppliers within the chain. Arguably, the major risk would be reputational risk, purely due to the fact that this is the easiest to lose after building up for years. The prevention of this risk comes from proactive monitoring and enforcement of standards. OCI has made sure that these five risks are proactively monitored in order to maintain our good standing and the relationships we have with both existing and potential partners. Some of the risks include non-shipment by the supplier, the supply of inferior products, damage or loss of cargo in transit, a change in government regulations at the time of import, and disputes by the buyer. As a supply chain partner, we ensure that each and every single risk is identified and make the necessary mitigations.
In managing supply chain risks, known risks in particular, the main focus should be building a stable and efficient framework. The first step here is identifying and documenting each and every risk to the business and the chain as a whole. Organizations must pinpoint each party within the supply chain, for example; suppliers, warehouses, transportation routes, and assess any and all incidents that may occur.
Risk assessments should be based on three areas;
- The impact on the organization if the risk incident occurs
- The likelihood of the risk occurring
- The organisation’s plan to deal with that specific risk, assuming that they have prepared for it.
The next step is monitoring the potential risks, this can be done through observing the news, regulations, geographic locations, and industries that the organisation operates with. This method is usually customized to the organization’s needs and the likelihood of a risk occurring. The organization would also need robust governance mechanisms to review supply chain risks. This needs to be done periodically to improve and maintain the agility of the supply chain.
When it comes to unknown risks, these are almost impossible to predict or implement into a risk management framework. In mitigating these risks, the main goal is to create a strong defence and a culture of risk awareness within the organisation itself. In building a risk-averse culture, organisations would have to make transparency and responsiveness a priority throughout their hierarchy, as well as with their partners within the supply chain. This, in turn, establishes and maintains defensive layers.
One of the key ways in managing supply chain risk is through diversifying production. COVID-19 brought about the concern of the use of single-source suppliers, as previously discussed in; Our Economy: The vaccine, Brexit and the new multifunctional normal. Single source suppliers have proven to be disadvantageous in terms of most countries’ domestic consumption requirements throughout the pandemic, especially from countries in the western hemisphere. The strict regulations that were put in place globally had governed who companies could do business with. A long term solution in which to amend this is for other countries to find a way to produce the products on a domestic level.
Adaptability and transparency are also issues within the supply chain and need to be implemented within a risk management strategy. Companies, especially in circumstances such as a pandemic, have to ensure that supply chains are agile, flexible and transparent. This has also been discussed in one of our previous blog posts; Blockchain: Transparency within the Supply Chain, in which implementing technology, e.g. Blockchain, would ensure better transparency and accountability within the supply chain.
Organisations should recognise that risk management entails a change in company culture and mindset, and not just setting up the processes of identifying and monitoring known and unknown risks. In adopting strategic approaches to risk management, it would minimise the impact and disruptions made on supply chains and industries.
“OCI takes extra care in monitoring all risks that could affect our organisations or the ones of our partners. With the current boom in the demand for PPE, we work closely with our partners to mitigate and remove risks at every stage of the supply chain and across logistics and the financing of transactions. As OCI is committed to working with its clients on a partnership basis, we can ensure that these risks are navigated and tackled appropriately for each stakeholder.” – Oliver Chapman, CEO
For more information on how OCI can support your business across any supply chain, please contact us.