Despite the negative impacts of the COVID-19 pandemic, supply chain management is steadily getting back on track and is expected to become integral to global economies in the next several years. In 2020, the global supply chain market was valued at $15.58 billion and is expected to double by 2026, reaching close to $31 billion. 

While this growth will present numerous advantages and opportunities for supply chains, it is not to say that the future won’t be without its risks. As global supply chains continue to expand amidst our rapidly changing world, it is likely that a number of challenges will present themselves in the form of labor disputes, natural disasters, changes in regulations, and growing cybersecurity concerns. 

To mitigate these risks and prevent setbacks like those experienced during the pandemic, it will become increasingly necessary for supply chains to adopt more resilient risk management strategies. 

Why Risk Management Matters

Risk management is critical as it helps build more resilient supply chains that are better prepared for unexpected events. Not only do risk management strategies help supply chains maintain continuity in the face of setbacks, but adopting an innovative strategy supported by the latest technologies also helps supply chains stay competitive and keep up with customer demands. 

Supply chain risk management (SCRM) can also help optimize processes, such as inventory management, which can lead to significant cost savings. Furthermore, by streamlining operations, SCRM also improves employee experiences, which can lead to better communication and increased productivity. 

Common Risks Affecting Supply Chains Today

Supply chain risks can come from both internal and external sources. This is why it’s important to have a more holistic approach to risk management, which looks at the entirety of the supply chain as opposed to only considering the most obvious risks. 

Anything that has the potential to disrupt operations, is considered a risk that is worth looking into. While risks can vary from one company to the next, the following are some of the most common affecting global supply chains today:

• Natural and economic disasters: Hurricanes, earthquakes, and pandemics.
• Political and economic developments: Geopolitical instability, war, strikes, and trade disputes.
• Fluctuations in demand: Rapidly changing customer preferences.
• Cybersecurity threats: Increased reliance on technology leading to vulnerabilities in the face of increased cyberattacks. 
• Supplier failures: Poor supplier financial stability and capacity constraints creating instability.
• Transportation disruptions: Trade route alterations and other disruptions causing delivery issues and leading to price increases. 

These are some of the primary risks disrupting supply chains today, but there are a number of other risks that can arise, such as labor disputes, human rights and environmental impacts related to ethical and social responsibilities, and quality control issues. While the risks can vary, the consequences are almost always the same — higher costs, lost sales, production delays, and reputational damage. 

Strategies to Mitigate Supply Chain Risks

An effective SCRM is key to addressing and mitigating future disruptions. This involves identifying and assessing risks, creating agile plans, adopting the right tools and technologies, and diversifying suppliers.

1. Risk Analysis

Before adopting a strategy to prevent disruption, you must first identify all potential risks. This requires conducting a business impact analysis (BIA). This form of risk assessment is about identifying potential impacts by pinpointing vulnerabilities and weaknesses with the goal of developing a realistic contingency plan. 

The first part starts with looking at both internal and external factors that could critically impact business functions, such as weather, political stability, transportation routes, etc. From there, you need to identify how likely these things are to occur and how dependent your business is on things in these areas going according to plan. The more dependent your business is on a certain aspect, such as political stability, and the more likely that thing is to be disrupted, the higher the risk. 

The final step before developing a plan is assessing the impact that disruption will have on each business function. Factors to consider include financial loss, downtime, customer impact, and reputational damage. 

2. Agile Planning

There are two parts to agile planning when it comes to risk management: visibility and contingency. 

Visibility is about having an overall view of your supply chain and how everything is connected and working together, so you can more clearly see what areas will be impacted by disruptions and plan accordingly. A great way to do this is through iteration planning. 

Iteration planning is a method that involves mapping overall processes using “chapters” or iterations. This type of agile framework makes it easier to visualize the supply chain as you identify each step or process that could be impacted. This enables you to prioritize criteria so you can focus your efforts on areas that are more vulnerable or at higher risk of being disrupted.  

From there, you can start developing a contingency plan and set recovery objectives. This means not only having a plan for how you will address these issues or what will be done to mitigate them, but also having a timeframe for when the disrupted function needs to be restored to get back on track. 

3. Innovative Technologies

Automating processes using the latest smart technologies is a key part of an effective SCRM strategy. AI technologies in the supply chain, for example, can optimize various processes, including inventory management, fleet management, machine utilization, robotic assistance, and supply chain planning. 

Data analytics tools that use AI and IoT also play an important role in tracking and monitoring risks. These technologies use machine learning algorithms to identify trends and patterns in data that could indicate potential risks in the supply chain. Having this data enables you to take swift action before the potential risk becomes a present issue. 

Meanwhile, colocation data centers enable you to build out a secure IT infrastructure that encompasses multiple nodes of the supply chain. These centers enable the type of backups and redundancy essential to continuity and resilience. 

4. Diverse Suppliers

Sourcing from a more diverse pool of suppliers is the final step in building a more resilient supply chain. This ensures that you have a backup system of reliable supplies should one of them fail or fall through. In addition to working with a variety of suppliers, it’s also important to maintain good relationships with all suppliers by establishing clear and open communication channels. 

Wrapping Up

On a final note, a key element in building a strong and resilient supply chain is having the financial resources to support your efforts. Having adequate supply chain finance is essential for achieving sustainable goals by ensuring greater accessibility to working capital. Financial stability is a critical part of developing an effective SCRM strategy that ensures resilience in the face of today’s ever-evolving risks and challenges.