With visibility into the array of potential risks resident within your supply chain, you must then determine which will be addressed. Not all risks are created equally and each company’s strengths and vulnerabilities will determine which risks are significant enough to warrant investment in proactive mitigation. One method for evaluating each risk factor is the “Value at Risk” (VAR) metric from the Supply Chain Council. This metric enables users to calculate the probability of an event and multiply it by the expected monetary impact of the event (i.e., if this happens, what does it mean for my organization?). This data allows companies to determine the most effective allocation of resources based on a methodical ROI assessment.
Once you’ve prioritized potential risks, the next step is to choose an appropriate risk response: acceptance, avoidance, transference or mitigation. Assign risk “owners”—individuals responsible for managing the assigned plan—and set your plans in motion.
The final, and potentially most critical, aspect of your risk management plan is the tracking/control phase. A “set it and forget it” approach won’t work. Risks are not static—they must be managed in accordance with the ever-changing dynamics of the global supply chain. A commitment to continuous improvement is a must. Regular audits assure your time and resources are well spent.
Risk management is not an option. In today’s global business environment, supply chain risk management can no longer be perceived as an optional or expendable part of a corporate strategy. The stakes are too high and the risks are too prevalent to leave to chance. Without a calculated strategy to mitigate supply chain threats, companies run a higher risk of being challenged with lower revenues, higher costs, poor asset utilization and loss of reputation and credibility.
Those companies that take the time to “prepare for the worst” and develop robust processes that are sufficiently flexible to meet unexpected challenges can not only diminish the downside impact of the inevitable supply chain disruption, but also capitalize on their competitions’ lack of planning to create a significant competitive edge.