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Risk Management

Risk Management is an activity focussed on assessing, mitigating, and monitoring risks. The goal is to manage uncertainty and threats using best practices, modern technologies, and people-power. In the supply chain context, risk management is usually focussed on continuity of supply, cost control, and quality assurance. The goal is that the required raw material is available where it needs to be when it needs to be there, is of an appropriate quality, and is obtainable at the expected, or negotiated, cost.

Supply chain risk management professionals have to contend with a large number of internal, external, network, economic, environmental, geo-political, and compliance risks on a daily basis. From an internal perspective, there could be production line failures, quality problems, unpredictable raw material or parts shortages, sabotage by disgruntled employees, strikes, and pandemics that cause a large portion of the workforce to become suddenly unavailable for work. From an external perspective, a new technology or business model could emerge that disrupts normal operations across the supply chain. From a network perspective, outsourcing, third party logistics, and vendor managed inventory carry their own risks as do communication network failures, customs delays, and supplier bankruptcies. From an economic perspective, an organization has to contend with the inherent unpredictability of supply and demand, currency valuations, and global financial markets. From an environmental perspective, an organization has to be prepared for natural disasters such as earthquakes, hurricanes, and typhoons. From a geo-political perspective there are acts of sabotage, theft, terrorist attacks, and wars to contend with. And from a compliance perspective there are dozens of security, free trade zone, and customs acts and regulations that need to be satisfied.

Fortunately, modern strategies for supply assurance and cost containment are varied and more complex than the classic strategies of safety margins, just-in-case inventory, reserved capacity, and order expediting which often carried as much risk as they mitigated. Today, supply chain risk managers employe production versatility, concurrent processes, decision postponement, advanced sourcing strategies, business process management techniques, market intelligence, incentives, price hedging, and forward-thinking contracts as part of their risk-mitigation tool kit, tackling strategy, market, implementation, performance, demand, and human risk in the process.

For a much deeper dive into Supply Risk Management, I refer you to the e-Sourcing wiki paper. For more information on select areas of risk management and mitigation strategies, please see the following posts:


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