How SCM Professionals Manage Risk in the Supply Chain
Supply chain management (SCM) is all about setting schedules and meeting them. After all, the timing of shipments — in both the business and consumer sectors — is essential.
Thus, a smooth logistics journey, entirely free from unexpected bumps in the road, is a common overarching goal in the SCM industry. And the average SCM professional directs a great deal of energy toward one thing: how to manage risk in the supply chain.
Navigating Supply Chain Risk Management
When discussing supply chain matters, it is crucial to stress their extensive nature. From the sourcing of raw materials for product manufacturing to the final delivery of products to the ultimate consumer, the typical supply chain contains many links; different problems are likely to occur in one or more of them. This is just one among numerous factors that make risk management in the supply chain so challenging.
Types of Supply Chain Risk
When it comes to supply chain risk, it is also critical to note the extensive and diverse nature of the vulnerabilities that might exist. “These risks could be operational (e.g., failure of software or hardware), transportation, logistical, affecting distribution or production,” reports the third-party risk management technology provider Panorays. “All of these risks, however, have the same impact on organizations — financial and reputational loss and customer churn.” Specific types of supply chain risk include:
- Demand fluctuations – Anticipating the need for certain shipments at certain times is key to supply chain success.
- Supplier disruptions – You may take care to ensure that your own logistics channels are following free and clear, but you have far less control over the logistics channels of your suppliers.
- Geopolitical issues – No business operations exist in a bubble. Any number of local, national, or international events can impact your supply chain for better or for worse.
Consequences of Inadequate Risk Management
The global logistics conglomerate Carter Logistics highlights just a few of the many ways that poor SCM can negatively affect businesses. While the impact of a mismanaged supply chain can lead to frustrating warehouse inefficiencies, its disastrous effects can continue to reverberate throughout a company and its target market, causing untold damage to customer satisfaction and brand reputation. Among other pitfalls, supply chain managers must avoid falling into a short-sighted “one and done” mentality by focusing on basic contract fulfillment rather than comprehensive logistics optimization.
Of course, any failure to adequately identify vulnerabilities, anticipate problems, and generally address risk can come with serious financial implications. Supply chain disruptions and failures have their immediate costs, but what the Far Eye logistics software company calls the “domino effect” can be even more devastating.
Because a supply chain is linked to many entities by its very definition, a single issue can continue to plague a company for some time: “Delays in delivery, rising logistics costs, long production cycles, increasing risks, poor customer experience, non-compliance, poor inventory management are some of the drawbacks of a supply chain domino effect.”
What Do SCM Professionals Do to Manage Supply Chain Risks?
Fortunately, the modern SCM professional has developed many methods to manage risk in highly proactive and strategic ways. Here are just a few general approaches to SCM that are common today:
Risk Identification and Assessment
You cannot address vulnerabilities that you have not identified. Therefore, every quality SCM risk management initiative must begin with an in-depth analysis of potential disruptions and areas of risk that span the supply chain. As previously discussed, this might include the assessment of individual supply chain suppliers as well as market demand volatility and larger geopolitical matters. A good SCM professional will also want to pay close attention to weather forecasts and predictions of natural disasters because Mother Nature can deliver any number of logistics nightmares.
One of the best methods of supply chain risk identification and assessment is supply chain mapping. This process begins with thorough research into each supplier and logistics provider within a particular supply chain to create an interconnected chart of the entire network. With this detailed map at your disposal, detecting weak links becomes far easier.
Supplier Management and Relationship Building
A chain is only as strong as its weakest link. Therefore, it is key to establish and maintain productive relationships with the right suppliers. An effective supply chain manager will implement a rigorous supplier evaluation and selection procedure based on criteria such as quality, reliability, and financial stability. Furthermore, each supplier in a supply chain should have their own comprehensive risk management capabilities.
Open communication channels and productive collaboration frameworks can help you foster strong supplier relationships that promote trust, stress transparency, and generally curtail risk. After they secure a worthy partner in the supply chain, SCM professionals tend to value and maintain that relationship. In fact, long-term and mutually beneficial relationships are quite common in supply chain operations.
Inventory Optimization and Demand Forecasting
With the help of digital analytics software and other advanced technological tools, supply chain managers are rising to meet the various challenges of the modern business world. From large inventory shipments to consumer package delivery, these tools are doing wonders to predict and meet fluctuating supply chain demand.
Often employing artificial intelligence and machine learning algorithms, SCM professionals create predictive models that can accurately forecast future spikes in need that would otherwise go entirely undetected. Businesses may want to consider inventory management approaches ranging from safety stock optimization (which involves holding excess inventory to prevent shortages at key times) to just-in-time (JIT) optimization (which reduces warehousing costs by only ordering goods from a supplier when they are immediately needed).
Supply Chain Resilience and Contingency Planning
With all that could go wrong in every link of the supply chain, you simply cannot put all your effort into a single supply chain path. No matter how reliable your “plan A” seems, you always need a “plan B” and “plan C” in the world of SCM.
As part of your comprehensive set of risk mitigation strategies, you must focus on the creation of robust contingency plans and alternative sourcing options to address potential supply chain disruptions and ensure steadfast business continuity. Among other things, this means conducting regular assessments to identify areas of weakness in your supply chain plus taking redundancy measures and other actions to boost resiliency.
Technology Adoption and Digital Transformation
Beyond inventory optimization and demand forecasting, technology is powering advancements in many other aspects of SCM. Transformative, state-of-the-art supply chain visibility and traceability technologies include the Internet of Things (IoT) and blockchain. IoT digital sensors and smart devices interact with one another without direct human intervention to keep supply chain operations humming along. Blockchain allows all supply chain stakeholders to share authenticated information in common regarding both the location and condition of shipped goods.
In fact, tracking systems can help businesses and consumers alike trace the path of shipments in real time. Enterprise resource planning (ERP) systems provide a similarly comprehensive supply chain picture for SCM professionals. These highly integrated end-to-end digital platforms cover every detail when it comes to monitoring and managing supply chain operations.
Essential Risk Management Skills for SCM Professionals
With the right educational and training framework, you can hone the risk management skills needed to succeed in the world of supply chain management. Before delving into our list of essential risk management skills for SCM professionals, it may be helpful to divide the industry basics into technical (or “hard”) skills and personal (or “soft”) skills.
Technical Skills
- Inventory management – Understanding inventory control systems, techniques for optimizing inventory levels, and JIT and economic order quantity (EOQ)
- Logistics and transportation management – Familiarizing yourself with transportation modes (air, sea, road, rail), routing and scheduling for efficient product delivery, and freight forwarding and customs regulations
- Procurement and sourcing – Developing a command of strategic sourcing methods, supplier relationship management, vendor selection, and contract negotiation
- Supply chain analytics – Utilizing data analysis and interpretation, forecasting demand and supply, and SCM software and analytics tools
Soft Skills
- Communication – Mastering effective communication with team members and stakeholders, negotiation/conflict resolution, and presentation skills for conveying complex information
- Problem-solving and decision-making – Honing critical thinking to identify and resolve supply chain issues, an analytical approach to evaluating alternatives, and an ability to make quick decisions under pressure
- Adaptability and flexibility – Acclimating to changing market conditions and demonstrating both flexibility in managing unexpected disruptions and openness to adopting new technologies and methodologies
- Leadership and teamwork – Leading cross-functional teams, motivating team members to achieve common goals, and encouraging collaboration and cooperation among internal and external partners
Strategic and Managerial Skills for SCM Professionals
- Strategic planning and forecasting – Leading long-term planning for supply chain optimization, conducting risk management scenario planning, and promoting continuous improvement and innovation
- Project management – Planning, executing, and monitoring supply chain projects with focus on time and resource management, stakeholder coordination, and project evaluation
Financial Skills
- Cost management – Developing various cost analysis and reduction strategies
- Budget planning – Using methods such as financial forecasting and return on Investment (ROI) analysis to set and adhere to budgets
Continuous Learning and Professional Development
Before, during, and after their formal college education in supply chain, SCM professionals must do all they can to embrace career-long learning and development. Outside the academic setting, you can further your future in the supply chain industry by staying current on its latest trends and pursuing relevant professional certifications.
Industry Knowledge and Trends
Whether or not you are enrolled in a specific training program or taking official continuing education (CE) courses, keeping up to date with the latest SCM technologies and practices is an absolute must. You will want to consider networking with other SCM professionals and thought leaders along with participating in industry conferences, workshops, and webinars.
Integrating a Supply Chain Management Degree with Certifications
Beyond pursuing specialized training through advanced degrees and seeking continuous improvement through professional development programs, you may want to seek and obtain one or more relevant industry certifications. In addition to advancing your knowledge and sharpening your skills, the following certifications can lead to more and better job prospects.
The Association for Supply Chain Management (ASCM) and Institute for Supply Management (ISM) are two of the leading bodies of professional certification within the supply chain industry:
- The ASCM offers Certified in Production and Inventory Management (CPIM), Certified Supply Chain Professional (CSCP), and Certified in Logistics Transportation and Distribution (CLTD) designations.
- The ISM offers Certified Professional in Supply Management (CPSM) and Certified Professional in Supplier Diversity (CPSD) designations.
To Learn More About Supply Chain Management
For further details about the importance of risk management and other essential aspects of supply chain management, examine the specifics of our entirely online bachelor’s Degree in Supply Chain Management program at the University of Memphis Global. If you’re ready, get in touch to request information today or apply now.
Sources
https://transimpact.com/nextsights/safety-stock-optimization/
https://www.turing.com/resources/blockchain-for-supply-chains