Companies have varying degrees of internal processes for Supply Chain Risk Management (SRM), often-centered on optimization to minimize costs and reduce inventories; this focus is quickly becoming insufficient. With the unexpected trials of today’s environment – COVID-19, Anti Free Trade Efforts, Climate Change, and a push for Sustainable Supply – SRM processes are neither resilient nor robust enough to handle current and potential future challenges.
Internally, companies have managed Supply Chain Risk through Sales & Operations Planning (S&OP) Processes, often-coupled with more formal Supply Chain Risk Management reviews. SRM processes have historically focused on ten critical risk factors: 1) Cost variability, 2) supplier financial risk 3) supplier relationship management, 4) quality control, 5) supplier staffing shortages, 6) second-tier supplier disruption, 7) transportation disruptions, 8) cross-border controls, 9) geopolitical risk, and 10) compliance risk. However, the current pandemic has highlighted many deficiencies in the manufacturing supply chain, which has prompted organizations to reevaluate SRM plans, addressing future potential disruptions.
According to the Manufacturing Leadership Council and the National Association of Manufacturers, only 23% of manufacturers say they are very capable of identifying supply chain risks.
The list on the below illustrates the potential impact of both the historical risk factors defined above and more recent ones on the various business value drivers. The risk posed by these factors can have serious consequences, not only for Supply Chain Management but also for Working Capital Management and Operational Efficiency.
Potential Downstream Impact of Supply Chain Risk
- Cost Variability
- Second-Tier Supplier Disruption
- Supplier Financial Strength
- Trade & Tariffs
- Transportation Disruption
- Current & Future Unplanned Macro Events (pandemics, market corrections etc.)
- Supplier Relationship Management
- Cross-Border Controls
- Regulatory & Political Change
- Geo-Political Risks
- Demand Change
- Staffing/Resource Challenges
- Compliance Risks
- Climate Change
- Quality Control