Supply Chain Risk Management Tips

​A supply chain is the network of individuals and companies involved in the production and distribution of products or services. Supply chain risk management (SCRM) is the process of finding and mitigating all vulnerabilities. It's crucial for operational resilience, financial stability, and regulatory compliance.

Supply chain risks come in various forms, depending on the industry and products or services involved. Some risks are internal, such as financial risks and manufacturing risks. Others are external, like geopolitical and environmental risks. Some internal and external risks are interlinked. For example, conflict in one region (geopolitics) can drive up material costs (financial).

SCRM starts with mapping out the supply chain. It helps you understand how processes unfold and how goods and services flow from the source to the user. It also tells you how much power each player holds, so you can reduce dependency. If you or your vendor uses one route to ship raw materials or finished products, consider finding a backup route and supplier.

The more external participants, the more oversight you will require. However, keeping tabs on all players can be challenging. Automating some processes, such as subcontractor tracking, frees you up to focus on tasks requiring personal attention. Real-time monitoring helps identify potential problem areas in the supply chain so you can make the necessary adjustments.

Speaking of adjusting, one way to remain flexible is to have a responsive inventory. It leaves you with some wiggle room to improvise. Maintaining an inventory buffer, for example, allows you to cover delays. That requires accurate demand modeling and forecasting, helping reduce the financial risks associated with over- or under-stocking. The former ties up capital. The latter results in lost sales opportunities and customer dissatisfaction.

External risks are the hardest to manage. For example, who a subcontractor hires is outside your control. Still, it's on you to protect yourself and your operations. One way to do that is to avoid verbal contracts, getting every commitment in writing. Should there be a dispute, verbal contracts typically don't hold up in court.

Contracts can only do so much. They only help in the event of a dispute, which can disrupt operations. There's also reputational damage to worry about. Therefore, be careful who you work with.

Prequalifying all third parties helps reduce the likelihood of problems down the road. Before selecting a supplier or distributor, ask for references or past clients and inquire what it's like to work with a particular subcontractor. Having several options reduces the pressure to choose a particular subcontractor. Also, look beyond price. Consider quality, availability, capacity, reliability, and insurance.

The more complex a supply chain, the harder SCRM will be. It makes it hard to track all processes and players and map out their relationships from start to finish. Another challenge stems from a lack of data due to third parties' reluctance to offer data that might help you better assess risk. Finally, SCRM is expensive. It requires new technologies and training, which can be too much for small businesses.

SCRM is not a set-and-forget affair. Choosing the right-fit supplier doesn't mean you can rest easy. Worst-case scenario modeling and ongoing risk assessment help reduce surprises. SCRM is not reactive either. It anticipates and plans for vulnerabilities.

Jacob Boisvert Nashua NH

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