8 Tips on how to improve Supply Chain Risk Management

 This is a guest post by Esraa Ouda


Modern enterprises increasingly find themselves relying on others for their success. Historically, enterprises have spent less than a third of their budgets on purchased goods and services, having relied on internal sources for these.

Today, many enterprises spend most of their budget on purchased goods and services. This is in large part because of the advantages enterprises have found in strategies such as globalization, outsourcing, supply-base rationalization, just-in-time deliveries, and lean inventories. In addition, many companies have consolidated operations both internally and externally to achieve economies of scale.

While globalization, extended supply chains, and supplier consolidation offer many benefits in efficiency and effectiveness, they can also make supply chains more brittle and can increase risks of supply-chain disruption. Historic and recent events have proven the need to identify and mitigate such risks. In extreme cases, a single event at one location can severely damage an enterprise or even cause it to leave an industry.

Effective supply-chain risk management (SCRM) is essential to a successful business. It is also a competence and capability many enterprises have yet to develop. In some areas, both problems and practices are well defined. In others, problems are defined, but practices are developing. In still other areas, both the definition of the problems and the practices needed to address them are developing. In sum, SCRM is an evolving field. 

Some of the most important tips for improving risk management are as follows:
 

1. Identify risks early on

It's never too soon to start thinking about risk. The sooner you do this, the easier it will be to manage the risk. Think about risk management at the start of every project or task. What Early Warning Indicators (EWIs) can we track for different risks? Risk management should be embedded in all of your work processes and corporate culture.

2. Be positive

Not all risks are negatives, so do not only focus on the downsides. Risks can be positive too, presenting opportunities and enabling us to take advantage of a given event or situation. 

3. Estimate and prioritise risk

Use a risk matrix to assess and prioritise all known risks. You can calculate the severity of the risk by looking at both the probability (likelihood) and impact (severity).


4. Take responsibility and ownership

If you see something is wrong, such as a potential safety issue, suspected fraud, or security breaches, take responsibility rather than waiting for someone else to sort the problem out. Risk management works best when everyone is empowered to speak out and take action. 


5. Learn from past mistakes

Use historical data and anecdotes to learn from past mistakes and ensure they are never repeated. 

6. Use appropriate strategies to manage risk

Use the 4Ts model to decide how best to manage risk. This involves:
  • Transferring risk - assigning an individual, group or third party to be responsible for the risk
  • Tolerating risk - no action is taken to mitigate or reduce risk (it still needs to be monitored)
  • Treating risk - controlling risk through actions that reduce the likelihood of the risk occurring or minimise its impact before its occurrence
  • Terminating risk - altering processes or practices to eliminate risk completely.

7. Document all risks in a risk register

By capturing all risks across the company, you will be able to see 'the bigger picture' of your entire risk exposure, which will improve your information sharing and accountability. Remember to document who is responsible for what and appoint a risk owner too.


8. Keep monitoring and reviewing

The level of risk we face is continually changing, with new risks emerging and others becoming less critical. By being proactive and regularly monitoring your exposure, you will be ready to act when the time comes.

About the author:
Esraa Ouda is Senior Procurement Executive at Alghanim Industries in Kuwait and a CIPS Member since 2008. In her career, she went from junior Supply Chain and Procurement positions in various industries and gathered wide knowledge about the industry



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