Risk management is a very important element that corporations need to take care of. It has become more visible in the corporate sector especially within America as the vulnerability of the supply chain has been made more public than before. The reason for it becoming public is because the number of natural disasters has increased over the years. Many board of directors or CEO of different organizations have been trying to determine that how should they mitigate the risks that are involved in supply chain and how should they deal with such disruptions.
Natural disasters are just one type of risk, there are several other risks that are involved that can have an impact on the supply chain in one-way or another. Hence the companies or organizations needs to take as much preventative measures as they way want as it will help them make their supply chain management more efficient and useful than before.
Tomitigate risk, one needs to understand the type of risks that are involved in the supply chain. The list of risks includes:
Strategy Risk and Mitigation
The first risk that is involved is that of strategy risk. Strategy risk involves the process of deciding the right supplies management strategy so that the company or an organization does not incur any loss if the strategy is not correct. Companies and organizations should keep in mind that the strategy that worked for one company might not work you hence they should consider all the possible options in an extremely careful manner. The decision-making tool would differ between a business that is designed mainly to cater and fulfill the needs and requirements of local population as compared to the business that was designed specifically to cater globally.
However, to mitigate the risk in the supply chain that involves strategy is to define the strategy and every company should identify the right suppliers for their business. They should make use of reliable information that highlights the idea of market intelligence thus it will help them drive the decision-making process in the most efficient manner.
Market Risk and Mitigation
Under market risk the companies should make sure that they are keeping an eye on the brand, compliance and market exposure of the brand that they are planning to use. It is better to consider their financial exposure as well. Hence if any company decides that they will outsource the entire product line then they should bear in mind that they are putting their company at risk and hence if the supplier fails to deliver quality product then the customers will hold you accountable and not the suppliers. Therefore, the suppliers should be decided carefully so that one can ensure that the image of their company is not at risk.
However, to mitigate this risk the companies can identify the standards of quality of the suppliers and what kind of impact it can have on the image of the company after that quality of product is utilized and is sold in the market. Carefully monitor the lines so that any risks can be carefully identified way before the product is used.
Implementation Risk and Mitigation
The implementation risk involves two factors and one is that of supplier implementation lead times and the other one is the production and performance ramp. The company needs to know all the details regarding the suppliers so that they have an idea that who they are working with and what is their capacity in terms of delivering work so that they can determine whether they want to sign the contract with them or not. If the company is working with a supplier who is getting just a fraction of money out of the collaboration then your company might not hold any importance for them. Thus, the suppliers might not give you the level of attention that you and your company deserve.
However, the way to mitigate this risk is to ramp up the new suppliers as quickly as possible so that one can get an idea of all the risk factors that might have an impact on the production of your good and lead times along with causing problems and hindrance in the phase of initial performance.
Performance Risk and Mitigation
The performance risk factor considers the quality of the ongoing supplier and the financial issues. Once a company finalizes the supplier then the actual work starts. Businesses need to shift their strategy every now and then hence constant monitoring is required to ensure that there is no fault in the performance of the business.
However, to mitigate the performance risk, the companies should monitor their suppliers constantly so that they can avoid and get rid of any disruptions caused by factors like bankruptcy, geopolitical changes or labor strikes. Technology is the most important component that a business needs to achieve such levels of monitoring the suppliers.
Demand Risk and Mitigation
Another risk is demand risk, which includes factors like demand and inventory fluctuations along with other challenges. Some suppliers have this tendency of jumping directly to a level where they are exposed to new opportunities thus they get a chance to excel in their field and get ahead of their competitors. However, to mitigate such risks the companies should carefully watch their suppliers for hints or signs that signify they are overwhelmed with the idea of a new business. Hence the companies need to make sure that the desire of the suppliers to outgrow does not have an impact on your business and the commitments that you have made.
Risks are a part of the supply chain hence the companies need to ensure that they implement a proactive approach and they should work with the suppliers to define the strategy they should use to achieve shared business goals. If the suppliers and buyers are on the same page then the chance if risks will be minimized.