More important than ever: supply chain risk management for industrial and commercial companies
A modern, multi-step supply chain may involve hundreds of suppliers. Unexpected weaknesses within these supply chains cost companies millions of euros each year. It was always important, but during the coronavirus pandemic logistics has become an essential service for all companies and industries.
And this means that the importance of robust supply chain risk management has also increased dramatically. It’s no surprise, then, that our blog today is focused on supply chain risk management.
What is supply chain risk management?
Supply chain risk management describes strategies, measures, technologies and processes put into place to mitigate risks along the supply chain. It is also designed to guarantee supply chain continuity and reliability. It was in 2010, after an Icelandic volcano stopped European air cargo transport in its tracks that the world-wide dependence on just-in-time supply chains was put to the test. Changes to risk management strategies had the goal of increasing flexibility and resilience in global supply chains. The idea was to make risks easier to anticipate and create optimal framework conditions for crisis situations. A survey carried out by Deloitte revealed that even during normal operations, 85 percent of global supply chains had experienced at least one disruption. No doubt the coronavirus crisis will continue to drive these strategical changes.
Known and unknown supply chain risks
Successful risk management involves targeting both known and unknown risks. Known risks are interruptions such as late deliveries, changes to material costs or supplier disruptions. Provided that a company has done their research and has an adequate amount of market expertise, these risks can both be predicted and systematically categorised, and a set of clear instructions for dealing with them can be prepared to be followed when they occur. Popular examples in terms of regional risk analysis for hauliers are problems caused by bad weather or traffic jams at well-frequented locations. In these cases, the problem can be easily described and assessed. It is also easy enough to determine a course of action (e.g. detour around the traffic jam) for every possible scenario. It’s a simple formula: If A, then B. Although these examples may seem simple, it should be clear that known risks, in particular, need to be evaluated regularly. After all, road works shift locations frequently and weather conditions change from season to season. Conclusion: active management minimises risks,
No matter what type of risk you are dealing with, it is important to establish a risk management framework. This framework is used to calculate the probability of the risk occurring and the effect it will have on the company and the rest of the supply chain. A simple traffic light system encompassing low to high risks with commonplace scenarios and relevant recommended actions is a great way to get started.
In contrast to known risks, unknown risks describe events that are hard to predict, such as natural disasters, sudden political unrest or pandemics such as the current coronavirus crisis. Supply chain risk management for both known and unknown risks is typically divided into four phases: identification, analysis, control, monitoring. Ideally, risks will be identified and documented for every step in the supply chain. This allows the company to draw conclusions on and recommend courses of action for future deliveries. Unknown risks require a special management structure and preparation. First and foremost, company employees must be on the lookout for risks and capable of dealing with them. Employee training, performance standards and development of an oversight, analysis and reporting structure creates a risk-aware company culture. This means, for example, that employees should be encouraged to speak openly about potential supply chain risks. In addition, there should be clear communication regarding how employees are expected to handle risks and where the responsibility for handling risks lies. Taking these steps will ensure that all participants are aware of the effects and limitations of risk tolerance within the company – and any potential risks can be dealt with quickly.
Minimising risks in the digital age
One major risk involves navigating legally binding contracts, various regulations and legally required documentation. The coronavirus crisis has only heightened the conflict between the digital and analogue worlds. There are so many different IT and telematics systems, not to mention obscure data protection and data storage regulations, which present a challenge to small companies in particular.
To master this challenge, companies should move quickly to implement a unified, comprehensive and user-friendly solution designed to minimise risks.
Digital supply chain risk management assistant
Missed delivery windows at the loading dock, traffic jams, unexpected problems with forms in a foreign language, expensive empty runs – it is not hard to identify the typical risks experienced by hauliers. TIMOCOM’s Smart Logistics System helps mitigate precisely these supply chain risks for freight forwarders and HGV drivers, which in turn helps drastically reduce them for industrial and commercial companies. In addition to the risks discussed above, the System can provide assistance making business decisions based on the internal company statistics it collects. Future decisions can thus be made based on objective information, and of course this can also help to improve existing business relationships or in the selection of new business partners.