Supply Chain Risk Management

12 Jan, 2023

Supply Chain Risk Management (SCRM) – a gamechanger by driving value in procurement and supply chain organization

The importance of SCRM

A review of the historic supply chain disruptions of the past few years would hardly be news to anyone. In an unprecedented pandemic period, with new climate challenges, and among the difficulties of war, it is no surprise that global supply chains have recently been dealing with extreme risks.  However, it is important to recall that disruptions do not only occur in such unforgettable times. Risks are by nature ubiquitous and unpredictable. In 2012, there was a disastrous tsunami in Japan which impacted the automotive industry worldwide. In 2015, an immense explosion at one of the largest ports in the world, the Port of Tianjin, caused significant costs and losses. In 2018 the U.S. – China Trade War negatively impacted profit margins and created tense times of uncertainty. All risk cannot be avoided, but foresight in strategic management can mitigate significant damages.  After the tsunami of 2012, automotive organizations had nowhere to turn as many realized that their single source of materials was Japan. Even OEMs with multi-sourcing strategy encountered issues because many tier-1 suppliers procured materials from the same tier-2 supplier. Tier-2 Supplier’s challenges became direct concerns. Had there been a multi-layer SCRM program in place, these issues would have been easily avoided and would have little to no impact on the business. SCRM tools and processes act as guardrails and shields protecting the business from potential perils, hence providing a competitive advantage.

Fig 1.  Supply Chain Risk Management is a multi-layer practice, supporting entire enterprises by focusing on the external supply base

 

Next to disruption in supply chains, there is the pressure from governments, consumers, and other stakeholders to disclose data about supply chains. Many governments have enforced or are in the process of drafting a law that requires companies to monitor their compliancy (e.g. in human right or/and environmental risks) throughout their supply chains. In the countries where these supply chain acts have been enforced, there is a great deal of uncertainty as companies do not yet have the capabilities to fulfil the requirements of the new laws. This can for instance be seen in Germany where the supply chain act takes effect on 01.01.2023, however, not all companies are sufficiently prepared yet. SCRM is the key to keep on top of regulatory requirements and changes for supply chain due diligence.

 Fig 2.  Recent and upcoming Supply Chain Acts

 

SCRM explained 

A major responsibility in SCRM is to identify and analyze the critical failure points within the company’s supply chain. In doing so effectively, a cross-functional SCRM strategy needs to be designed with a focus on people, governance, processes & tools.

With a strategic SCRM in place, the critical supply chains risks are recognized and prioritized. Due to globalization, supply chains have become very complex, and many companies have no visibility or control over their supply chains. Creating transparency by mapping out these critical supply chains is a significant step. Companies can get fast insights on supply chains risk by integrating digital solutions that visualize and monitor potential supply chain risks for business operations worldwide. A digital solution will help the continuous monitoring of supply chain risk while the SCRM strategy design will support the process of risk identification, prioritization, and mitigation. A mitigation strategy will quicken the response to threatening circumstances, reducing disruptions and minimizing/eliminating damage. However, this is a balancing act because eliminating risks come at a price. Therefore, making calculated holistic decisions for supply chain risks of all likelihoods is a complex equation, yet pays off in noteworthy strategic benefits.

 

Next to the many reasons why SCRM is crucial to your company’s vitality, it is a practice that promotes many victories as well:

  • Outperforming competition who is affected by the same risks and gaining strategic competitive advantage
  • Continuously identifying, evaluating, and mitigating risk exposure while challenging costs when competing for supply chains
  • Protecting the reputation of a company by complying with supply chain acts
  • Reducing the amount of uncertainty while boosting confidence in business decisions

 

Deep-dive into maturity assessment

Now you might be questioning how to best get started with your SCRM journey. A great first step is to undertake a maturity assessment that defines the status and maturity level. Our SCRM maturity assessment follows a methodology to scan SCRUM and identify areas for improvement and introduce best practice. Based on the outcome of the this, Sourcing Champions can advise on the next steps that need to be taken depending on the current need (e.g. only to be compliant or to achieve competitive advantage through SCRM). There are different levels of risk exposure (from start to strategy) where a variance of levers can be leveraged and a customized strategy for bulletproof SCRM based on the company’s maturity.

Fig 3. Risk exposure levels from Start to Strategy

 

What to expect in our maturity assessment? For the SCRM health check, a series of questions will be asked through self-assessment questionnaires as well qualitative interviews. The current SCRM efforts of the corporation are aligned with best practices. Furthermore, a maturity score with actionable next steps is provided to prepare for the SCRM journey

Creating competitive advantage through strong Supply Chain Risk Management program implementation. Talk to us today!

 

 

Sabrina Hüren
Strategy Consultant
shueren@sourcingchampions.com