Understanding Supply Chain Risk Management(SCRM)

Supply chain disruptions have exposed how vulnerable global supply chains really are. The smallest change in the status quo can have disastrous effects on global trade and commerce. That is why supply chain risk management is a major concern for global businesses.

A worrying trend for supply chains is the exponential increase in disruptions & disruptive events. Take a look at the last 5 years – the Suez canal crisis, trade wars between China and the US, the COVID-19 pandemic, the Ukr-Rus war, and much more.

In addition to this, supply chains have become incredibly complex. A singular product’s supply chain can have hundreds to thousands of suppliers, logistics, warehousing, etc. businesses involved. Even the smallest of disruptions on one node hurts the entire supply chain structure and slows down a business significantly.

To tackle the constant disruptions within global trade, what businesses need is a proper supply chain risk management strategy. Let us jump right into it!

What is Supply Chain Risk Management?

At its core, supply chain risk management is a set of robust, flexible processes that a business needs to set up to mitigate the impact that disruptions can have on their supply chains.

Ideally, a business manages supply chain risk by taking strategic steps to identify risks to its supply chain and creating efficient plans to mitigate assessed risks. Unfortunately, there is no one-fits-all approach to risk management.

Based on your business and the entities involved within your supply chain, your risk management strategies will be different. Before going on with a process, it is first important to understand supply chain risks.

There are two categories your supply chain risks can be placed in:

• Internal Supply Chain Risks
• External Supply Chain Risks

Internal Supply Chain Risks

Internal supply chain risks are the risks that exist within your supply chains. These risks can be identified, monitored, and solved from within the organization. Here are a few internal risks faced by supply chains:

Bottlenecks

As discussed above, supply chains are becoming increasingly complex. Let us take the average smartphone as an example. All the raw materials for components are supplied by the third-tier supplier.

Multiple second-tier suppliers create the various components of the smartphones such as batteries, motherboards, cameras, touchscreens, etc.

The seller then has all the components shipped to various companies that assemble these smartphones according to the smartphone company’s requirements. These assembled smartphones are then shipped to the warehouses of the smartphone company which then supplies them to their stores, ecommerce websites, consumers, etc.

The example above involves dozens of businesses. Most supply chain are just as complex and this additional complexity can create bottlenecks. One slowdown in any of the businesses involved can directly affect the supply chains of the main company.

Bottlenecks, however, can be quickly identified and simple planning can help businesses mitigate their impact. The rise of various market intelligence technologies and supply chain data tools enables businesses to have the data and analysis required to deal with these problems.

Strategic Risks

Every business has a supply chain strategy in place to manage its networks. These strategies are often long-term and are planned based on forecasting and analysis. However, no matter how good a strategy is, it should be flexible enough to tackle potential supply chain risks.

Strategic risks include ethical violations, budget imbalances, mergers/acquisitions, and public backlash. It also includes operational risks such as theft, problems with manufacturing equipment and personnel, etc. These risks are well-known within every organization. Businesses can deal with them by proactively creating strategies that account for potential strategic disruptions.

Compliance Risks

Supply chains usually span multiple countries and continents. Businesses need to meet various rules & regulations for each political region. These compliance norms are often extremely stringent and limiting. Businesses that fail to manage compliance risks can face fines, penalties, and can also be sanctioned.

Businesses usually have a good idea of the laws they need to comply with. In addition, various global trade management & compliance solutions help businesses deal with compliance risks in real time.

External Supply Chain Risks

External supply chain risks are triggered by external events due to problems with your suppliers or your markets. These risks are something a business does not have direct control over.

Change in Demand

Applying mostly to consumer products, consumer demand is extremely volatile. Unfortunately, a business can never truly have control over consumer demand. Unexpected rises and falls in consumer demand can completely cripple a supply chain.

Change in demand can be caused by various factors such as new innovative competitors, regulatory changes, localized disruptions, misinterpreted customer demand, etc.

Natural Disasters

Earthquakes, tsunamis, landslides, and other natural disasters are something no supply chain can be prepared for. Natural disasters will disrupt your businesses’ supply chain. While there is no way to tackle this risk, what businesses can do is outline which nodes of their supply chain are at risk of natural disasters.

For example, a business that imports raw materials from Japan should be aware of how common earthquakes and tsunamis are in the region. Having alternative suppliers for goods that come from such areas is a good start to mitigate impacts that potential natural disasters can have.

Geopolitics

Another external risk factor that businesses cannot account for is geopolitics. The geopolitical climate can change in an instant due to any reason. The major disagreement between countries, war, acts of terrorism, and many more. For example, the Russia-Ukraine conflict has crippled multiple industries around the globe.

In addition, the conflict has affected the capabilities of various supply chains around the world. Businesses can only take precautions to manage risks from potential geopolitical problems. Avoiding major business with nations that are traditional enemies is a good start.

The Supply Chain Risk Management Process

The good news for businesses is that internal supply chain risks can be solved and external supply chain risks can be mitigated. Here are a few strategies for various kinds of risks:

Create a digital supply network to identify risks

Digital supply networks are essentially digitized versions of your supply chains. Supply chains usually have a very linear structure. Each entity of the chain depends on the entity below it. A digital supply network can help you gain greater visibility for each entity involved in your business supply chains.

Such a supply chain can significantly help you create a more robust supply chain structure protecting you from both internal and external risks. Here’s a video that explains it well. Digital supply networks have better supply chain visibility compared to your average supply chain. This visibility can help identify and mitigate risks faster.

Tools like Trademo Intel can help provide data intelligence for your digital supply networks. Learn more about Intel here:

The PPRR methodology

PPRR is a common risk management methodology. It stands for prevention, preparedness, response, and recovery. This methodology is used by most major global businesses in their supply chains. In a digitized supply chain, the PPRR methodology can be observed more actively.

Prevention: The first step of supply chain risk management is to prevent known risks. In this step, you must identify the risks that your supply chain faces. This can be accomplished with the help of data and supply chain visibility. Prevent the risks that you can by implementing new strategies that account for these risks.

Preparedness: ‘Always have a contingency plan’. Next, you must develop plans in advance for the risks you face. A chain of command, and multiple processes need to be implemented in case of an emergency. You need to be proactive instead of reactive to properly manage your risk.

Response: In case of a disruptive event, your business must be mobile and respond quickly based on the plans you have set. Each plan must be executed quickly and efficiently. For example, if one of your suppliers cannot meet their quota, you must have an alternative supplier ready as soon as possible.

Recovery: Once the disruptive phase has passed, your business must try and recover as fast as possible.

Meet compliance norms at all times

Compliance rules and regulations are updated regularly. A business needs to keep track of the various compliance norms it needs to meet. It could be environmental norms, financial norms, customs rules, etc. Various risk management software, trade compliance solutions, and sanctions screening tools are the perfect way to meet these norms.

Monitor & review all strategies

Risk management is not a one-time task. It is a continuous process of monitoring and reviewing cycles for your supply chains and business processes. All the strategies you create to handle various internal/external supply chain risks need to be updated to meet new challenges and new disruptions.

How Trademo Can Help in Supply Chain Risk Management

Managing supply chain risks requires the efficient use of various technologies. To give perspective, here are some of the tools you’ll require:

• Supply chain mapping
• Environmental risk tools
• Global trade management
• Sanctions screening
• And many more.

We currently have a dedicated toolkit guide for risk management coming up. Subscribe to our newsletter to stay updated!

If you need Trademo’s help, however, we can help you map your supply chains and meet global compliance and sanctions norms:

Trademo Intel: Trademo Intel is a supply chain and trade data intelligence tool that can help you find buyers/suppliers across global markets. Apart from that, it can help you visualize global supply chains and find relevant data for supply chain mapping, and helps create a digitized supply chain network.

Trademo Compliance: Trademo Compliance is a global trade management platform that helps you meet trade compliance norms, calculate landed costs for your imports/exports, and classify the products within your supply chains. Compliance ensures that you always pay the right taxes/duties for the products within your supply chain avoiding legal risks.

Trade Sanctions Screener: Trademo Sanctions Screener is a denied party screening platform that helps ensure that you are in business with are not sanctioned entities. It helps you keep track of over 500+ global sanctions lists helping you ensure that you never miss a sanctions update.

To explore our solution for Upstream and Downstream Supply Chain Mapping

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