Disruptions in the last several years have reinforced the importance of supply chain risk management that enables organizations to manage risks while also delivering business results.
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The 2021 Gartner Supply Chain Risk and Resilience Survey indicates 79% of large organizations are leaning into resilience and risk management. We predict that by 2025, supply chain risk management will be a key success driver for more than 50% of organizations. Plus, we found that many organizations are developing a dedicated function with multimillion dollar budgets to spearhead the effort.
“Supply chain leaders must invest in building an advanced risk management function. It’s not a choice but a survival decision at first and then a differentiator for success,” says Koray Köse, Senior Director Analyst at Gartner. “Technology is key to scale, but it must be chosen carefully to match critical required capabilities.”
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The basics of supply chain risk management
Supply chain risk management will soon be a core competency and budget line item that requires effective investments and holistic management. It has the potential to impact almost every stakeholder inside and outside of the supply chain function. Almost 80% of survey respondents at large organizations have used lessons from past disruptions to change the way they conduct business. They are leaning into resilience and agility in an attempt to be more proactive and better prepared.
An effective supply chain risk management strategy consists of well-designed processes and dedicated resources to manage situations that hit organizations unexpectedly. The right mix of technologies — ones that enable better supply chain visibility, information gathering, analytics and decision making — are the differentiators.
Learn more: Your Ultimate Guide to Supply Chain Management
Types of risks
Risk management is not a guarantee of mitigation, but it does prevent specific risks by enhancing absorption and recovery capabilities. Consider the below risk categories that you can manage:
- Aleatory risks are known in type and impact, require know-how and can be foreseen.
- Latent risks are known to others in the supply chain as hidden knowledge.
- Epistemological risks are known to exist but lack further information around level of impact.
- Ontological risks are unforeseen with a complete lack of insights.
Learn more: Supply Chain Planning — Your Strategic Guide to What, Why and How
Questions to consider when creating your risk management plan
These questions will help facilitate the creation of a risk management roadmap.
- Which processes are truly effective in detecting and managing risks?
- What information and data are available, and what is missing?
- What governance and compliance structure is currently effective or ineffective?
- Does the organization have a risk-appetite statement that supports its current risk posture with key risk indicators?
- Are we currently shifting supply chain staff to support our risk management strategy and incident management?
- Which technologies are available at arm’s length, and which could be effective add-ons or swaps based on our processes and resources?
- Do we have a responsibility assignment matrix, i.e., a RACI matrix? What training exercises are in place?
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- What measures of long-term performance are needed to communicate success or improvements within our organization’s processes, resources and technology?
- How will we find the talent to support risk management?
- Are we reevaluating our policies and procedures to ensure they have purpose and address our specific circumstances?
- Which emerging technologies and frameworks would support our processes and resources?
- Three years from now, in what ways will supply chain risk management become our core competency and drive business results?
- In three years, how will our team and organization look different than it does today?