Supply chain risk management strategies (2023)

If multinational corporations have learned anything in the past couple of years, it’s that supply chain disruptions can come from anywhere: climate change, pandemics, geopolitical tension (e.g. Brexit), terrorism, regulatory changes, shipping accidents, cyber attacks, sanctions—you name it. And because the dangers are so great and varied, companies are pursuing new supply chain risk management strategies, particularly in the areas of trade compliance, import/export screening, supplier evaluation, and post-entry audits.

In 2020, the COVID-19 pandemic was the primary cause of supply chain disruptions, followed by extreme weather events, cyber crime (e.g., ransomware), and transportation/logistics issues. That said, the total number of disruptions is also increasing. In a recent report on supply chain resilience by the Business Continuity Institute (BCI), 27% of organizations reported more than 20 supply chain disruptions during 2020, up from 4.8% in 2019—an increase of more than 500%!

Why companies need better supply chain risk management strategies

According to the BCI, 40.2% of COVID-related disruptions came from Tier 2 suppliers and below. That is, the disruptions were caused by entities far down the supply chain—from suppliers that the companies themselves knew next to nothing about and had not considered in their standard risk mitigation protocols.

Clearly, companies need better supply chain risk management strategies to avoid such unwelcome surprises. But too many companies still leave critical components of their supply chain to chance. In fact, only one in six organizations carries out due diligence on all key suppliers at the procurement stage, and a quarter fail to do so until after the contracts have been signed, when it is often too late.

(Video) Beyond the Pandemic: Mitigating Supply Chain Risk and Disruption

Companies that fail to understand every aspect of their supply chain are inviting unexpected disruptions, not to mention the risk of fines, penalties, loss of import/export privileges, cost overruns, loss of reputation, and erosion of consumer trust. Given the various types of risk and possible consequences, the question then becomes: How can companies create more comprehensive supply chain risk assessment and business continuity programs to protect themselves from being blindsided by factors they failed to foresee?

Know your business partners: Supplier evaluation and selection

Though many kinds of risk are caused by events beyond a company’s control, the supply chain is a network of business relationships over which companies have a great deal of power and control, starting with the suppliers they choose to do business with.

It may sound obvious, but at the very least companies should know who their business partners are and whether they represent a potential weakness in, or threat to, the supply chain. Granted, many multinational companies have hundreds, if not thousands, of suppliers all over the world, but such diverse and complex arrangements only highlight the need for absolute transparency up and down the chain.

(Video) Supply Chain Risk Management Strategy || Response to Risk || Contingency Plan

Know your business partners

As the saying goes, “you can’t mitigate what you haven’t identified,” so the first questions supply chain managers should ask themselves are:

  • How well do you know your business partners?
  • Are they reputable? Reliable?
  • Do they reflect well on the company?
  • Does their location or mode of operation represent any risks to the supply chain?
  • If so, are those risks acceptable? Tolerable? Unavoidable? Mitigable?

Asking these questions is important because many consumers do not distinguish between a brand and its suppliers. So, for example, if it’s discovered that a company’s third-tier supplier is using child labor or somehow violating US sanctions, the negative publicity can do considerable damage to a brand.

Developing a comprehensive supply chain risk assessment program

To avoid such situations, companies should develop a comprehensive supply chain risk assessment program that makes intelligent use of software tools specifically designed to take the guesswork out of import/export risk and compliance.

(Video) Supply Chain Risk Management (SCRM)? Analysis, Assessment & 7 Critical Risk Factors | AIMS UK

For example, denied party screening software does the tedious work of comparing supplier information against multiple international watch lists, allowing procurement managers to identify potential “problem suppliers” before the contract is signed.

However, technology solutions that automate screening for denied or restricted parties, politically exposed persons, adverse media, sanctions, and other aspects of global trade are only as good as the quality of their lists—and those lists are constantly changing. For example, Thomson Reuters maintains more than 300 restricted party lists and regularly logs 350,000+ list updates per year in support of the company’s global trade management software. Trying to keep track of so many changes manually isn’t just impossible; it’s extremely risky.

Supplier assessments are another critical function that can benefit from automation. With supply chain compliance software, companies can automate supplier questionnaires, create immediate alerts for high-risk responses, and even issue corrective actions. Having a central repository also makes it easy to analyze and report on supplier risk criteria and best practices with the push of a button.

Of course, there is no guarantee that disruptions won’t arise in other areas, such as border declarations, regulatory changes, country of origin statements, tariffs, licenses, product classification, and other import/export requirements. Shipping and logistics can also cause problems, especially at borders and ports of entry, as can the need for product testing and other country-specific regulations, such as anti-dumping duties and rules governing free trade zones.

Indeed, every link in the supply chain contains a certain amount of risk, including the products themselves, which can be subject to tariffs, testing, licenses, permits, and more. Well before any product is shipped, then, it needs to undergo a thorough risk analysis. Ultimately, analytics and proactive global trade planning will help you improve visibility and avoid future supply chain disruptions.

Here are a few key questions you should ask yourself:

(Video) Supply Chain Risk Management

  • Can the product be legally imported/exported to, through, and from the relevant countries?
  • If so, what upstream details (e.g., licensing, permits) need to be anticipated?
  • What tasks, costs, and risks will the product be subject to according to Incoterms rules?
  • Is proof of origin required, and is the company’s record of proof accurate?
  • Is the product subject to any retaliatory tariffs or duties?
  • Have compliance requirements been double-checked before shipment?
  • Are there security issues that need to be considered?

Conducting post-entry audits to uncover hidden supply chain risks

Another added layer of security can be achieved by conducting post-entry audits. These audits can uncover hidden vulnerabilities and other potential supply chain risks. They can also identify instances where duties or fees are over or underpaid, and give managers further insight into the true dynamics of the supply chain.

Again, import management software makes such audits much easier to conduct because the program’s reporting functions are typically designed to provide most of the relevant information. But even if a company isn’t using global trade management software (and according to the BCI, 42% aren’t), a cursory overview of the import/export process after the fact is a step in the right direction. That said, keeping track of all the possible pain points in any given supply chain is practically impossible without utilizing software, so relying on manual processes invites a certain amount of risk.

Top 10 supply chain risk mitigation strategies and best practices

It should also be understood that supply chain risk management in general is an ongoing process, not an occasional activity. Failing to monitor any part of the process opens the door to all kinds of risk—risks that can result in fines and penalties, loss of import/export privileges, personal fines, and even imprisonment. Therefore, it is imperative for companies, especially multinationals, to have the people, tools, and systems in place to ensure as secure, reliable, and efficient a supply chain as possible.

Implement these 10 best practices for supply chain risk mitigation today:

  1. Build an internal team with the right skills and secure senior management support
  2. Evaluate all suppliers in the chain, not just a few preferred ones
  3. Make risk evaluation an essential part of the supplier onboarding process
  4. Be able to map your supplier network for critical items, components, and services
  5. Tie supply chain mapping to threat data geographically in order to visualize potential issues (e.g., political unrest, tariff changes)
  6. Use a risk-based approach, but don’t use simple checklists—have a clear methodology
  7. Leverage threat data from multiple external sources and understand the consequences
  8. Evaluate the risk profile of all products being shipped
  9. Conduct post-entry audits of the import/export process
  10. Recognize that risk mitigation is an ongoing process, not a periodic chore

Leveraging global trade automation software to mitigate supply chain risk and manage by exception

Now, obviously, checking all of these details without the help of an automated global trade management solution would be prohibitively time-consuming and expensive. With comprehensive GTM software, however, all of these import/export factors and more (e.g., denied party screening, records, filings, data flow, licenses, tariffs, permits) can be programmed into the engine and monitored by trade compliance and supply chain personnel for alerts or other anomalies.

Indeed, the goal of global trade automation isn’t just to introduce necessary efficiencies into an extremely cumbersome process—it’s to reach a point where trade compliance and supply chain executives can “manage by exception.” That is, instead of trying to collect, process, and analyze all the information relevant to a company’s products, the software acts as a filter that only calls attention to suppliers, products, transactions, or details that look suspicious or out of character. If the system is continuously running in the background, trade compliance and supply chain managers are then free to focus their attention on proactively investigating alerts rather than trying to keep track of all the possible variables that might affect their supply chain.

To learn more, download our special report on how to mitigate risk in your supply chain.

(Video) Supply Chain Risk and the Management of Supply Chain Risk (Supply Chain and Supply Chain Management)

FAQs

What are the 4 strategies for risk management? ›

There are four main risk management strategies, or risk treatment options:
  • Risk acceptance.
  • Risk transference.
  • Risk avoidance.
  • Risk reduction.
23 Apr 2021

Which are 5 risk management strategies? ›

The basic methods for risk management—avoidance, retention, sharing, transferring, and loss prevention and reduction—can apply to all facets of an individual's life and can pay off in the long run.

What are the 4 supply chain strategies? ›

Integration, operations, purchasing and distribution are the four elements of the supply chain that work together to establish a path to competition that is both cost-effective and competitive.

What are the 7 different types of supply chain risks? ›

7 Basic Types of Supply Chain Risks
  • About Supply Disruptions. ...
  • Financial risks. ...
  • Scope of schedule risk. ...
  • Legal risks. ...
  • Environmental risk. ...
  • Sociopolitical risk. ...
  • Project organization risk. ...
  • Human behavior risk.
9 Jan 2019

What is the best risk management strategy? ›

9 Types of Effective Risk Management Strategies
  • Identify the risk. Risks include any events that cause problems or benefits. ...
  • Analyze the risk. ...
  • Evaluate the risk. ...
  • Treat the risk. ...
  • Monitor the risk. ...
  • Avoidance. ...
  • Reduction. ...
  • Sharing.

What are the 7 principles of risk management? ›

Projects of all sizes require risk management in some form.
...
  • Ensure risks are identified early. ...
  • Factor in organisational goals and objectives. ...
  • Manage risk within context. ...
  • Involve stakeholders. ...
  • Ensure responsibilities and roles are clear. ...
  • Create a cycle of risk review. ...
  • Strive for continuous improvement.
8 Oct 2020

What is an example of risk management strategy? ›

1. Avoiding risk. An avoidance strategy is an effective method for removing risks from your workplace. For example, you could avoid using a piece of faulty equipment because it isn't necessary.

What are 8 risk management processes? ›

Eight steps to establishing a risk management program are:
  • Implement a Risk Management Framework based on the Risk Policy. ...
  • Establish the Context. ...
  • Identify Risks. ...
  • Analyze and Evaluate Risks. ...
  • Treat and Manage Risks. ...
  • Communicate and Consult. ...
  • Monitor and Review. ...
  • Record.
21 Jul 2019

What are the 3 types of risk management? ›

Widely, risks can be classified into three types: Business Risk, Non-Business Risk, and Financial Risk. Business Risk: These types of risks are taken by business enterprises themselves in order to maximize shareholder value and profits.

What are the 6 risk management processes? ›

  • Step 1: Hazard identification. This is the process of examining each work area and work task for the purpose of identifying all the hazards which are “inherent in the job”. ...
  • Step 2: Risk identification.
  • Step 3: Risk assessment.
  • Step 4: Risk control. ...
  • Step 5: Documenting the process. ...
  • Step 6: Monitoring and reviewing.

What are the 6 supply chain Strategies? ›

Some strategies for an excellent supply chain are:
  • Cut inventory costs. Be it a brick and mortar store or an online business, inventory is always present and it costs money. ...
  • Integrate business processes with technology. ...
  • Use an inventory management software. ...
  • Manage inventory risk. ...
  • Take green initiatives.
3 Sept 2021

What are the 3 types of supply chain strategies? ›

3 supply chain strategies for small businesses
  • Demand-driven supply chain strategy. A demand-driven supply chain focuses on meeting demand from the consumer. ...
  • Agile supply chain strategy. ...
  • Collaborative supply chain strategy.
21 Jan 2022

What are the 3 P's in supply chain? ›

Supply Chain and Risk Management: “3Ps” – Predictive, Proactive, Prescriptive.

What are the four 4 stages of supply chains? ›

What are the components of your supply chain you should be focusing on right now?
  • INTEGRATION. Integration starts at your strategic planning phase and is critical throughout your communications and information sharing and data analysis and storage. ...
  • OPERATIONS. ...
  • PURCHASING. ...
  • DISTRIBUTION.

What are the 7 supply chain functions? ›

While supply chain is a very broad career field, it has 7 primary functional areas: Purchasing, Manufacturing, Inventory Management, Demand Planning, Warehousing, Transportation, and Customer Service.

What makes a good supply chain strategy? ›

A good supply chain strategy is about fulfilling demand, driving customer value, improving responsiveness, facilitating financial success and building a good network. The primary goals of efficient supply chain management should be faster delivery, higher efficiency and accelerated cash flow.

What are 3 common supply chain risks? ›

Most of the risks that could disrupt your operations fall into four broad categories: economic, environmental, political and ethical.

What are the 5 biggest supply chain issues? ›

Shippers' Top 5 Supply Chain Challenges:
  • Keeping transportation costs down.
  • Keeping up with customer/industry demands.
  • Sourcing consistent, reliable carrier capacity.
  • Keeping up with the latest technology solutions and demands.
  • On-time pickup and delivery performance.
30 Sept 2022

What are the 5 risk categories? ›

There are five categories of operational risk: people risk, process risk, systems risk, external events risk, and legal and compliance risk.

Why risk management strategy is important? ›

Risk management is an important process because it empowers a business with the necessary tools so that it can adequately identify and deal with potential risks. Once a risk has been identified, it is then easy to mitigate it.

What comes first risk or strategy? ›

So, management should never set strategy without evaluating risk. Managers will naturally gravitate to the opportunities with the highest return, regardless of the risk. That is why a risk evaluation must be performed when strategy is formulated, because each enhances the other.

What are the 10 P's of risk management? ›

Introduction; Implications of the 10Ps for business; 10Ps - Planning; Product; Process; Premises; Purchasing/Procurement; People; Procedures; Prevention and Protection; Policy; Performance; Interaction between all the elements; Conclusion.

What are the 8 risk categories? ›

Risks Associated With International Activities

3 The OCC has defined eight categories of risk for bank supervision purposes: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. These categories are not mutually exclusive.

What are the 4 main categories of risk? ›

The main four types of risk are:
  • strategic risk - eg a competitor coming on to the market.
  • compliance and regulatory risk - eg introduction of new rules or legislation.
  • financial risk - eg interest rate rise on your business loan or a non-paying customer.
  • operational risk - eg the breakdown or theft of key equipment.

What are risk management strategies and processes? ›

There are five basic steps that are taken to manage risk; these steps are referred to as the risk management process. It begins with identifying risks, goes on to analyze risks, then the risk is prioritized, a solution is implemented, and finally, the risk is monitored.

What are key strategic risks? ›

Strategic risk examples

The introduction of new products or services. Mergers and acquisitions which prove unsuccessful. Market or industry changes, such as a shift in the needs or expectations of customers. Problems with suppliers and other stakeholders. Financial challenges.

What are the 12 principles of risk management? ›

12 Principles of Risk Management (PMBOK – with an Agile slant)
  • 1) Organisational Context. ...
  • 2) Stakeholder Involvement. ...
  • 3) Organisational Objectives. ...
  • 4) Management of Risk Approach (N/A) ...
  • 5) Reporting. ...
  • 6) Roles & Responsibilities. ...
  • 7) Support Structure. ...
  • 8) Early Warning Indicators.
28 Jul 2009

What are the 11 principles of risk management? ›

Here are 11 principles to consider for your business risk management plan:
  • Create and protect value. ...
  • Be integral to your process. ...
  • Be part of decision making. ...
  • Explicitly address uncertainty. ...
  • Be systematic, structured and timely. ...
  • Be based on the best available information. ...
  • Be tailored.

What are the 3 C's of logistics? ›

What are the 3cs of logistics? This method has you focusing your analysis on the 3C's or strategic triangle: the customers, the competitors and the corporation.

What is C3 in supply chain? ›

The C3 AI Supply Chain Suite combines the company's AI capabilities and Alphabet-owned Google Cloud's data organization and orchestration power. The product enables demand forecasting, optimized inventory and production and supplier lead time visibility, thus providing on-time, in-full customer delivery.

How many pillars are in supply chain? ›

The three pillars of supply chain management are strategy, service, and cost.

What are the 6 supply chain strategies? ›

Some strategies for an excellent supply chain are:
  • Cut inventory costs. Be it a brick and mortar store or an online business, inventory is always present and it costs money. ...
  • Integrate business processes with technology. ...
  • Use an inventory management software. ...
  • Manage inventory risk. ...
  • Take green initiatives.
3 Sept 2021

What are the three supply chain strategies? ›

The 3 Levels of Supply Chain Management: Strategic, tactical and operational.

What is supply chain 3 C's? ›

1. Corporation: corporate image, cost effectiveness, wastage & risk. 3. Competitor effectiveness in customer service and cost efficiency.

What are the 5 biggest supply chain challenges? ›

Shippers' Top 5 Supply Chain Challenges:
  • Keeping transportation costs down.
  • Keeping up with customer/industry demands.
  • Sourcing consistent, reliable carrier capacity.
  • Keeping up with the latest technology solutions and demands.
  • On-time pickup and delivery performance.
30 Sept 2022

What are the 5 key trends in supply chain management SCM? ›

New market dynamics are among five trends that IDC said will drive supply chain development over the next decade. In no particular order, they include networks and ecosystems; data analytics and automation; sustainability and the global workforce.

Why is supply chain strategy important? ›

Adopting the right supply chain planning strategy can help you reduce costs, improve customer service, and support your business goals. It can also help you understand your historical data, know where your inventory is, and adapt to changing demand.

What are the 8 basic best practices for supply chain management? ›

  • Set up a supply chain council. ...
  • Establish a supply chain structure. ...
  • Leverage technology. ...
  • Create alliances. ...
  • Focus on the total cost of ownership. ...
  • Strategically source suppliers. ...
  • Move contract management to the supply chain. ...
  • Optimize inventory for reduced cost.
15 Dec 2020

Videos

1. COVID-19 Impact - Supply Chain Risk & Mitigation Strategies
(Insurance Unplugged)
2. CIPS ANZ Webinar - Supply Chain Risk
(CIPS)
3. Supply Chain Risk Management
(University of Bath)
4. Managing Third Party & Supply Chain Risk Nicola Crawford
(Institute of Risk Management (IRM))
5. Know the Risk - Raise Your Shield: Supply Chain Risk Management
(Office of the Director of National Intelligence)
6. RMF 111 Supply Chain Risk Management
(Cyber-Recon)
Top Articles
Latest Posts
Article information

Author: Corie Satterfield

Last Updated: 02/14/2023

Views: 5876

Rating: 4.1 / 5 (42 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Corie Satterfield

Birthday: 1992-08-19

Address: 850 Benjamin Bridge, Dickinsonchester, CO 68572-0542

Phone: +26813599986666

Job: Sales Manager

Hobby: Table tennis, Soapmaking, Flower arranging, amateur radio, Rock climbing, scrapbook, Horseback riding

Introduction: My name is Corie Satterfield, I am a fancy, perfect, spotless, quaint, fantastic, funny, lucky person who loves writing and wants to share my knowledge and understanding with you.