From geopolitical conflict to the global pandemic, not to mention a steady rise in extreme weather, supply chain disruption has become a when rather than an if. Supply Chain professionals seem to agree : 68% of those surveyed said they expected supply chain risks to escalate throughout the year.
With supply chain disruption the new normal, mastering supply chain risk management (SCRM) has become the key to building and maintaining resilience within that normal.
But effective risk management goes way beyond reactive fixes and a fast response time. It requires clear supply chain visibility, real-time data, and the technology to build a comprehensive, proactive risk management plan.
Stay with us as we share risk mitigation strategies enterprises can adopt to future-proof their supply chain operations.
The five key stages of the supply chain risk management process
Every supply chain is unique, so the ideal SCRM process varies in line with the needs and priorities of each industry and business. That said, there are five key stages that are widely considered best practice. Let’s break them down:
1 - Supply chain risk identification
This first stage is all about information-gathering and building risk awareness. A good place to start is visualizing your entire supply chain, including every supplier, logistics provider, and third party (taking into account how they interact). Ideally, you’d use process mining to do this objectively, rather than subjective process mapping methods that rely on stakeholders’ impressions of how processes run.
With an accurate view of the big supply chain picture, you’re equipped to see how external risk could impact different components of the supply chain, and uncover any hidden dependencies. This process helps identify internal risk, by surfacing any security or compliance gaps, data or process silos, and other potential risk factors. Creating different risk categories is another valuable early step here (for example, operational, geopolitical, or cyber supply chain risk).
2 - Supply chain risk assessment and analysis
After risk identification, it’s time to evaluate the likelihood of those risks, and what impact they’d have. To prioritize which risks require immediate action, organizations tend to use a combination of risk matrixes, qualitative methods (like heatmaps), and data-driven modeling. This allows them to estimate the financial and operational effects of a particular disruption.
With process mining, you can take scenario planning a step further by simulating “what-if” scenarios based on your process data and models, allowing you to preempt issues like bottlenecks and transit delays.
3 - Supply chain risk mitigation and strategy development
You can now start to develop risk mitigation strategies for each identified risk category. We’ll go into more detail on some of the best strategies for mitigating supply chain risk later on, but they often involve steps like supplier diversification, improving visibility, and sourcing the right insurance to reduce exposure to financial risk.
A risk management strategy shouldn’t be full of complex theoretical ideas, but pragmatic plans that can be put into action quickly when the need arises. So take the time to properly forecast their cost and feasibility.
4 - Implementation and monitoring
Now the focus should shift to the proactive implementation of these strategies, and closely monitoring potential risk. This stage involves rolling out loss-prevention measures across the enterprise (and the supply chain) – be it via onboarding alternative suppliers or rerouting at-risk logistics channels.
Again, process mining is a powerful enabler here, giving you real-time visibility into how your supply chains actually run, so you can see the performance of a risk management plan as it unfolds, and even detect potential risks before they emerge.
5 - Review and continuous improvement
Complacency is the enemy of an effective SCRM process. Risks evolve constantly, so supply chain risk management should be a continuous effort. By reviewing the impact of disruptions (or the potential impact of a near miss), you gain crucial insights that can inform and refine existing risk mitigation measures.
Creating a feedback loop with teams across the business is also valuable here. To help identify gaps, you can ask every relevant team how effective they’re finding the strategies and tools in place – giving you qualitative analysis on top of process mining insights.