Five Efficient Techniques to Manage Supply Chain Risk


Risk is an inherent part of the supply chain, which is impacted by internal and external factors. It is essential for organizations to identify and mitigate these risks in order to ensure high productivity. Hence, supply chain risk assessment is an important component of a business’s operational strategy. The procurement team’s objective is to create a secure but high-performing supply chain.
Some techniques that can help an organization successfully manage supply chain risk are mentioned below.
  1. Supply market analysis – Supply chain risk assessment would always benefit from supply market analysis. Research helps to compile details of suppliers, changes in the external environment and other factors that could affect the procurement process. Hence, conducting an analysis can help the organization to be prepared for predictable risks.

  1. Supplier base – A business must establish a supplier base with vendors across geographies. Though supplier pricing and quality are usually the main criteria for selecting vendors, businesses must also consider other factors that can affect a vendor’s ability to perform and accordingly onboard them. If the company has multiple suppliers across regions, there are fewer chances of its production being affected by an unavoidable event in any particular country or city.

  1. Supplier financial stability – Most companies do not have adequate visibility of the financial stability of the entire supplier community, especially the key suppliers. Occasionally, companies receive reports for some suppliers on a case to case basis but do not have consolidated details for the entire vendor base. They rely on details voluntarily submitted by the suppliers themselves. A vendor may be in debt, facing bankruptcy, or entangled in any other financial loophole that can hamper its ability to deliver, and thus, impede the company’s business processes. Therefore, companies should hire external resources, if necessary, but they must stay up to date on the financial details of suppliers.

  1. Contract management – Supply chain risk assessment would also include effective contract management. Instead of having contracts that are lengthy and difficult to understand, it is advisable to have in place a new style of contract design that facilitates well-drafted agreements. Moreover, concise, balanced contracts that clearly establish the ownership of every risk are easily accepted by suppliers.

  1. Risk management officers – Businesses must have a risk management officer at a higher level who can provide strategic guidance during an emergency. A management-level official can also assist in making quick decisions and giving approvals. In addition, having senior personnel helps establish and nurture a culture of risk management.
Supply chain risk assessment can aid in identifying different types of potential risks. These risks are usually related to vendors, supplier pricing, industry dynamics, or geopolitical situations. The successful management and mitigation of risks enable organizations to operate seamlessly and have an uninterrupted production cycle. Overall, this leads to higher customer satisfaction and greater profitability.

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