Supply Chain Risk Management

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While globalization, extended supply chains, and supplier consolidation offer many benefits in efficiency and effectiveness, they can also make supply chains more brittle and can increase risks of supply-chain disruption. Historic and recent events have proven the need to identify and mitigate such risks. That the reason that Supply Chain Risk Management (SCRM) is essential to a successful business. It is also a competence and capability many enterprises have yet to develop.

Resultado de imagen para  Potential Risks to an Organization and Its Supply Chain

The Supply Chain Risk Leadership Council (SCRLC) defines Supply Chain Risk as the likelihood and consequence of events at any point in the end-to-end supply chain, from sources of raw materials to end use of customers, and SCRM as the coordination of activities to direct and control an enterprise’s end-to-end supply chain with regard to supply-chain risks.

SCRM focuses on:

  • Identifying internal and external environments
  • Risk identification and assessment
  • Risk treatment
  • Continual monitoring and review of risks and their treatment.

The efforts to implement SCRM must address four principles:

  1. Leadership
  2. Governance
  3. Change Management
  4. The Development Of A Business Case.

Resultado de imagen para  Potential Risks to an Organization and Its Supply Chain

In the following table is demonstrated the potential risks to an organization and its Supply Chain by categories.



Potential Risk


External, End to End Supply Chain Risks

Natural disasters

  • Epidemics
  • Earthquakes
  • Tsunamis
  • Volcanoes
  • Weather disasters (hurricanes, tornados, storms, blizzards, floods, droughts)


  • Fires
  • Explosions
  • Structural failures
  • Hazardous spills

Sabotage, terrorism, crime, war

  • Computer attacks
  • Product tampering
  • Intellectual theft
  • Physical theft
  • Bombings
  • Biological and chemical weapons
  • Blockades

Government Compliance and Political Uncertainty

  • Taxes, customs, and other regulations
  • Compliance issues: Regulatory and restrictions
  • Currency fluctuations
  • Political unrest
  • Boycotts

Labor Unavailability and Shortage of Skills

  • Availability
  • Quality
  • Cost
  • Unrest
  • Strikes and slowdowns

Market challenges

  • Capacity constraints
  • Unstable prices
  • Lack of competition
  • Entry barriers
  • Capital requirements
  • Specific assets
  • Design patents
  • Process patents
  • Shrinking industry
  • Low supplier profitability
  • Certification
  • Cost trends
  • Recessions/Inflation


  • Environmental
  • Health and safety
  • Intellectual property

Technological trends

  • Emerging technologies (pace/direction)
  • Obsolescence
  • Other technological uncertainty

Supplier risks


Physical and regulatory risks

  • Key Suppliers Located in High Risk Areas
  • Material Unavailability/Poor Planning
  • Legal Noncompliance / Ethical practices
  • Regulatory Noncompliance

Production problems

  • Capacity
  • Inflexible Production Capabilities (Long setup times)
  • Technological Inadequacies or Failures
  • Poor Quality
  • Lead Times

Financial losses and premiums


  • Degree of Competition/Profitability
  • Financial Viability

Management risks


  • Planning
  • Management Quality
  • Substituting inferior or illegal materials/parts
  • Lack of Continuous Improvement
  • Dependence on One or a Few Customer(s)
  • Poor Communication

Upstream supply risks


  • Any of the above external/supplier risks
  • Lack of visibility into subcontractors
  • No or poor relationships with subcontractors
  • Diminishing sources of supply
  • Transition “costs” for new suppliers

Distribution Risks


Infrastructure unavailability


  • Roads
  • Rails
  • Ports
  • Air capacity/availability

Assets-Lack of capacity or accidents


  • Containers
  • Trucks
  • Rail cars
  • Ships Airplanes

Labor unavailability


  • Truck drivers
  • Rail operators
  • Longshoremen Pilots

Cargo damage or theft


  • Physical damage
  • Theft and other security problems
  • Tracking the damage
  • Environmental controls (e.g., temperature, humidity)

Warehouse inadequacies


  • Lack of capacity
  • Inaccessibility
  • Damage
  • Environmental controls (e.g., temperature, humidity)
  • Lack of security

IT system inadequacies or failure


Long, multi-party supply pipelines

  • Increased chance of all problems above
  • Longer lead time

Internal Enterprise Risks




  • Loss of Inventory (damage, obsolescence)
  • Equipment loss, mechanical failures
  • Process Issues: reliability, robustness, Lead time variability, Inflexible Production Capabilities (long set up times, etc)
  • Capacity
  • Poor Quality
  • Environmental performance to permits / other

Government Compliance and Political Uncertainty

  • Taxes, customs, and other regulations
  • Currency fluctuations
  • Political unrest
  •  Boycotts

Demand Variability/Volatility

  • Drawdown of the stockpile
  • Exceeding maintenance replacement rate
  • Shelf life expiration
  • Surges exceed production, repair, or distribution
  • Shortfalls

Personnel Availability/Skills Shortfalls

  • Sufficient number
  • Sufficient knowledge, skills, experience
  • Union contract expiry
  • High turnover rate

Design uncertainty


  • Changes to requirements
  • Lack of technical detail
  • Lack of verification of product
  • Changes to product configuration
  • Poor specifications
  • Reliability estimates of components
  • Access to technical data
  • Failure to meet design milestones
  • Design for supply chain (e.g., obsolescence, standardization, and commonality)

Planning failures


  • Forecast reliability/schedule availability
  • Planning data accuracy
  • Global visibility of plans & inventory positions
  • Competition/bid process
  • Acquisition strategy
  • Manufacturability of a design
  • Program maturity
  • Subcontracting agreements

Financial Uncertainty/Losses

  • Funding availability
  • Workscope/plan creep
  • Knowledge of supplier costs
  • Strategic risk

Facility Unavailability/Unreliability/ Capacity

  • Facility breakdown
  • Mechanical failures
  • Sites located in high risk areas
  • Adequate capacity

Testing Unavailability / Inferiority / Capacity

  • Unreliable test equipment
  • Operational test qualifications
  • Operational test schedule
  • Integration testing
  • Transition from first test to mass production

Enterprise Underperformance/Lack of Value

  • Customer satisfaction/loyalty
  • Liability
  • Cost/profit
  • Customer demand
  • Uniqueness
  • Substitutability
  • Systems integration
  • Other application/product value

Supplier relationship management

  • Contract/supplier management availability and expertise
  • In-house SRM expertise
  • Lack of internal and external communication/coordination
  • Supplier development and continuous improvement Supplier communications

To summarize the SCRM is an integrated sub-process of a company-wide risk management process. The coordinated goal definition, risk identification, risk analysis, risk management, and monitoring and control of the efficiency of systems and measures make up the key elements.

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The proactive phase involves developing a corporate strategy that is in line with the objective to achieve a defined delivery capability in case of a harmful event, while striking an efficient balance between required capacities for recognizing and managing supply interruptions, and susceptibility to disruptions in the supply chain. 


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