Steps To Avoid The Supply Chain Risk

Supply Chain Risk Management (SCRM) is a process which identifies the potential disturbances in the manufacturing process and this leads to the commercial financial exposure. SCRM reduces the supply chain risk by a coordinated holistic approach.

The supply chain risks are of two types, one is external risks and the other is internal risks.

• External risks arises due to the effect of external factors like market conditions and these are not controlled by the business. It includes demand risks, supply risks, environmental risks, business risks related to the factors such as suppliers, financial or managerial stability and physical risks.
• Internal risks are with in the control of the business and this includes manufacturing risks, business risks caused by the change of key personnel, planning and control risks, mitigation and contingency risks.

Understanding and managing of the supply chain risks involves 5 steps:

Supplier base:
This is an important task, and in this step essential things for the company are found out in terms of raw material, strategic materials and understanding the strategic suppliers organization.

Vulnerability:
In this step company identifies the causes for the above said risks and their effects and the ability of the company to cope up with them.

Implications:
Various techniques like Monte Carlo simulation are implied to check the potentiality of the risks.

Mitigation:
This is the step where the company needs to set goals and targets and know how to achieve them. It is similar to the business continuity planning and evaluating how soon the company can get back to business as usual.

Measures and actions:
Clarification of roles and responsibilities, between the partners of the supply chain and risk management process to be effective it must be fully integrated in to the business process.

All the above five steps when thoroughly implemented can definitely avoid the supply chain risk.