October 16, 2024
Effective supply chain risk management forms the backbone of any contemporary venture that relies on the sourcing of goods through a complex network of suppliers and logistics partners. This involves the anticipation, identification, and mitigation of risks across different parts of the supply chain-both internally and via third-party relationships. More importantly, it is a realization in direct terms that supply chains can cause big disruptions for a company, management of whose operations should always be prepared for.
The visibility brought by such a plan is, therefore, paramount to the reduction of disruption and cost containment, and assurance that operations will run without fail even during times of uncertainty. In this article, we look closer at supply chain risk management: what it is and why it is important, and best practices and strategies for managing supply chain risk management
What Is Supply Chain Management and Why Is It Important?
Supply chain management entails coordinating and supervising the flow of products of an organization from the raw materials stage through manufacturing, right up to the end consumer. It involves, in general, the acts of management, sourcing, procurement, production, and logistics. Or, if you will, a very broad process addressing the motions that are necessary to make and sell a product.
Given that these can be complex, disruption along any part of the supply chain will negatively affect the outcome through delayed timelines, excess costs, and even lost revenue.
Supply chain management is, therefore, important as it highlights the points a company may be vulnerable to and it potentially reduces problems arising in daily operations. From the volatility of prices for the raw materials to unexpected delays in transport, having the company constantly observe threats to its supply chain is part of the process.
Generally, the benefits of managing a supply chain risk by having a plan that comprehensively covers it are:
- Cost Saving: Early mitigation of the risks saves from expensive fixes at the last minute.
- Operational Resilience: In such cases, companies can return to work sooner in case of any unprecedented closure.
- Stronger Supplier Relationships: With a clear plan in place, collaboration with suppliers to address potential risks is far more effective.
5 Supply Chain Risks and Issues
Even for the most evolved supply chains, there are a number of threats that hamper their performance to a great extent. Some of the most frequent issues businesses face these days include:
- Extreme and Unexpected Weather Difficulties: The effects of climate change only bring forth extremities of uncontrollable weather difficulties, a factor that natural disasters over the past years have grown to a great height in terms of hurricanes and wildfires-all of which play a very key role in route disruptions and shipment delays.
- Cyber attacks: Supply chains are becoming digitized and, therefore, increasingly susceptible to cyber attacks by malicious actors. Attacks aimed at supply chains could lead to stolen data or operational shutdowns-not to mention paying ransom to regain control of software.
- Shipping container cycles: the number of the latter in the water considerably differs according to transnational pattern-for example, today, due to delays in shipment, there is a shortage of containers worldwide. As a result, it increases their cost and, further, creates a bottleneck for many businesses using international trade.
- Fluctuations in Demand: Every company experiences supply chain imbalance due to unexpected changes in consumer behavior trends, resulting sometimes in excess stock and sometimes shortages-as was observed during COVID-19 with reasonable changes in preferences.
- Health of Supplier Relationships and Risks: Companies rely on a select few suppliers, making them vulnerable should an attack occur on one of those particular suppliers. When one key supplier suffers financial distress or operational failure, a supply chain is considered to be disrupted.
Supply Chain Risk Management Best Practices
Employing best practices in the management of supply chain risks would reduce the effects of such challenges and many other causes that may strike your day-to-day operation. Not to mention, they could improve the overall performance as a result. The following strategies are paramount in the supply chain risk assessment.
1. Predictive Inventory with Historical Data
With historical trends, a company is in a position to predict future demand with great detail. Companies may thus predict their inventory needs more accurately by analyzing the past trends and prepare for disruptions in the supply chain by preparing the right quantity of merchandise ready to hand on.
2. Increase Visibility in All Parts of the Supply Chain
Having reliable and real-time visibilities across each and every aspect of the supply chain aids businesses in responding swiftly to potential risks the moment one shows up. Technologies such as Auba, providing renovated tracking and monitoring, make sure that companies have their clear views from procurement to delivery and all the many risks arising during transportation.
3. Model All Possible Scenarios and Action Plans
You should formulate several risk scenarios that could affect your company and come up with action plans to accompany them. By this, whatever the disaster may be whether it be due to a nature intervention or to failure of a supplier, there can be severely reduced impact because of the predefined response to be placed into operation.
4. Acquire Supply Chain Management Software
Advanced supply chain management software, using state-of-the-art technology, can streamline operations and automate a good number of your and your company’s risk management processes. As an example, AI and machine learning algorithms can analyze supply chain data to identify patterns, predict impending disruptions, and recommend real-time contingency plans.
At Auba, we offer AI-powered supply chain risk management through our comprehensive dashboard that provides full visibility into the disruptions. If this is something you’d be interested in, you can always schedule a demo with us to learn more:
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Get Ahead with Supply Chain Management AI
Mitigation of supply chain risk is increasingly critical in today’s complex, disruption-prone environment. At any given time, companies must be prepared to manage everything from severe weather to cyber attacks. This will be accomplished by applying best practices in predictive inventory management, increasing supply chain visibility, and leveraging advanced technologies that will create sustainable, more resilient, and agile supply chains.
At Auba, we are working on AI-driven solutions for supply chain optimization and risk management, bringing together cutting-edge technology and the best research. Our platform will empower you to bring in more visibility, model risk scenarios, and automate processes to mitigate risks effectively. Stay ahead of supply chain disruptions and subscribe to our newsletter to find out more about how Auba can help your business.
