SUPPLY CHAIN RISK MANAGEMENT-1

1. DEFINITION:

Supply Chain Risk Management (SCRM) is the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity. (Source: Cranfield University, School of Management).

Risk= Probability of Occurrence x Consequences

2. Risk Management Process:

The process begins with identifying internal and external environments. Mapping its supply chain can help an enterprise identify the risks it faces and how best to prioritize and address them. Once a firm understands how to identify risks, it may undertake risk identification and assessment, which includes risk identification, risk analysis, and risk evaluation. If a firm has identified and prioritized the risks that it faces, it can devise risk treatment plans. This includes measures to protect the supply chain from risks, plans to respond to events that these risks may cause, and plans to continue operations in the face of disruptions and fully recovering from them. This may also involve determining ways to measure risks and the effectiveness of plans to limit them or to respond to disruptions.

i. RISK IDENTIFICATION

Risk identification might begin with brainstorming sessions, previous risk assessments, surveys, or still other efforts to identify and list potential risks within supply-chain processes. In any project risk can be categorized as:

- Supply Risk

- Process Risk

- Demand Risk

- Network/ Control Risk

- Environmental Risk

- SUPPLY RISK

Supply risk comes from dependency on key suppliers. It includes quality of supplied raw material, management of raw material and delay in provision due to transport, environmental or other accidental issue.

- PROCESS RISK

Process risk comprises of productivity issues of both material and man power. A faulty equipment or machinery will affect the manufacturing process. Similarly ineffective staff or work crew will delay the process. Electric power failure, problem in computers or software and capacity shortage is classified as Process Risk.

- DEMAND RISK

Inaccurate forecasts and unrealistic deadline may lead into quality issues which may cause loss of major customers. Innovative competitors in market may also lead a firm at shortage of demand.

- NETWORK/CONTROL RISK

Lack of communication and collaboration, poor planning and security risk can be referred as Network/ Control Risk. Wrong administrator or rule maker and hierarchy levels in a firm/team create communication gap between employee and team player. Loss of data whether electronic or hard copy file can risk a firm a long time loss.

- ENVIRONMENTAL RISK

Natural disasters and calamities are considered as Environmental Risk. Earthquake, hurricane or snow may cause destruction as well as long term delay of a project. Changes in government policies, economic recession and unavailability of technology are also categorized as Environmental Risk.

ii. RISK ANALYSIS

The risk analysis process should estimate the likelihood and consequence of risks facing a firm and accordingly prioritize them for ultimate treatment. Once an enterprise has identified its top risks, it may use more sophisticated methods, such as the bow-tie method, to fully understand the nature of the risk and to rate the likelihood and consequence of inherent risk (i.e., risk in the absence of any treatment) and residual risk (i.e., level of risk remaining after treatment).

Probabilistic studies of disaster such as earthquake or wind snow help out in planning. For example, we have charts for percentage increase of earthquake event over 50 years or 100 years. Also we have charts for maximum capable earthquake for an area. Similarly, we have charts for winds available.