Categories of Risk
| Risk Category | Description |
|---|---|
| Financial risk | Risk Associated with financial loss |
| Operational risk | Risk associated with organizational strategy or affecting organization at strategic level |
| Strategic risk | Risk that impact organization |
| Hazard risk | Risk which must be avoided or mitigated |
Checklist to mitigate Risk
You must ensure that your strategy:
- Addresses all risks and is proportional to the level of risk
- Details the escalation triggers and activities
- Addresses in a timely manner the impact of economic, political, technological and social changes
- Includes governance and appropriate resourcing and capability.
Source: IntechOpen
Strategy to control Supply Chain Risk
We need a strategy to control each Supply chain risk. The strategies should include.
Avoid – do not undertake the activity. If the activity is essential, then risk must be accepted and managed. Minimize – reduce either the impact or the probability (or both)
Spread – develop ‘insurance’. For example, source from more than one supplier, although lowest price point may not be achieved. To be effective multiple sourcing requires knowledge of any supplier interdependencies e.g. second or third tier supply.
Accept – best overall strategy, particularly if low impact/probability and alternative strategies are not deemed effective or efficient. An example might be where organizations no longer insure low value capital goods, but replace these as they wear out or suffer accidents. Overall, this saves money compared to the cost of insurance.
Benefits of Supply Chain Risk Management
Supply chain risk management benefits the supply chain in the following ways:
- Ensures production and deliveries are functioning optimally
- Avoids losses by detecting risks early
- Quick ability to respond to unexpected events
- Safeguards the image of your organization
- Boosts and maintains customer satisfaction
- Meets and exceeds rules and regulations, and safety standards
Supply chain risk management is always essential when we depend on suppliers for capability or capacity. We need to consider what the risks are that might prevent our organization delivering essential services, goods and works. We also need to consider the collective risks our wider organization faces. A rigorous program of information gathering, monitoring and action is required to effectively manage risk. Appropriate management, governance and escalation must be in place. Effective risk management is not about elimination of risk. It is about providing time to assess, plan and react to changing circumstances. We cannot eliminate risk, but we can mitigate it through effective management.
Author
Sheikh Nafiz Ahmed
MBA II Certified Supply Chain Analyst II
Experienced Leather Sector Supply Chain Professional
