En­vi­sion­ing un­fore­seen risks of SCRM

While risks are a part and par­cel of the in­dus­try, or­gan­i­sa­tions nowa­days have started un­der­stand­ing value of sup­ply chain risk man­age­ment (SCRM), says Vikas Kha­tri, Founder, Avi­ral Con­sult­ing.

Cargo Talk - - Guest Column - (The views ex­pressed are solely of the author. The pub­li­ca­tion may or may not sub­scribe to the same.)

Risk is part of ev­ery one’s life. As hu­man be­ing we plan our fu­ture and our plans al­ways have com­po­nent of un­fore­seen risks. Sim­i­larly, each busi­ness has as­so­ci­ated risks and con­tin­gen­cies re­lated to fi­nance, de­mand & sup­ply. His­tor­i­cally man­age­ment pays max­i­mum at­ten­tion to fi­nan­cial risks, fol­lowed by de­mand risk and sup­ply chain re­lated risk gets least pri­or­ity. While sup­ply chain risks also have as much im­pact as other risks. Sup­ply chain risks arise due to short sup­ply, sup­ply dis­rup­tion, higher lead time, qual­ity is­sues, nat­u­ral dis­as­ter, statu­tory is­sues, trans­porta­tion is­sues, port con­ges­tion, po­lit­i­cal is­sues, safety is­sues, cross-bor­der reg­u­la­tion, eco­nomic in­sta­bil­ity etc. Con­se­quences of sup­ply side dis­rup­tion are also hav­ing sig­nif­i­cant im­pact on P&L of or­gan­i­sa­tion. As per a study, the or­gan­i­sa­tion which faced ma­jor sup­ply chain dis­rup­tions saw de­cline in sales, de­cline in oper­at­ing in­come and de­cline in share­holder’s re­turns along with non-tan­gi­ble losses post dis­rup­tion.

Com­po­nents of ef­fi­cacy

Sup­ply chain func­tion has al­ways fo­cused on ef­fi­ciency and cost re­duc­tion by in­tro­duc­ing lean man­age­ment, sup­plier ra­tio­nal­i­sa­tion, JIT in­ven­tory, dis­tri­bu­tion chan­nel op­ti­mi­sa­tion and in­ven­tory ra­tio­nal­i­sa­tion. All these tools have helped in achiev­ing de­sired ob­jec­tives but in­creased the risks. So, there is a trade­off be­tween re­ward and risk of sup­ply chain. In such sce­nario, the rel­e­vance of con­tin­gency plan­ning in sup­ply chain be­comes very in­stru­men­tal to min­imise im­pact of any risk.

Over pe­riod of time or­gan­i­sa­tions has started un­der­stand­ing value of sup­ply chain risk man­age­ment. Still the con­cept does not seem wide spread across in­dus­tries. Large cor­po­rate and multi­na­tional or­gan­i­sa­tions has in­cluded it as part of their pro­cesses. In case of medium and small size or­gan­i­sa­tion sup­ply chain risk man­age­ment is still in nascent stage. Many of SME fol­low it as part of ISO or sim­i­lar com­pli­ance pro­cesses, not as sup­ply chain risk man­age­ment process.

Even in case of the or­gan­i­sa­tion who has implemented sup­ply chain risk man­age­ment, we find that more weight age re­mains only on up­stream sup­ply chain risk. We find that some of up­stream risks are well doc­u­mented like se­lec­tion of ven­dor, sup­plier strat­egy etc, while some process the risk as­sess­ment tools used are not com­pre­hen­sive and well doc­u­mented. On the other hand down­stream risks re­mains weak on pri­ori­ti­sa­tion.

Un­rav­el­ling SCRM

Next ques­tion which arises that why sup­ply chain risk man­age­ment is not in ma­ture stage till date. Is SCRM too costly af­fair or is it too com­plex af­fair or some­thing else. Sup­ply chain risk man­age­ment may be com­plex and costly, where or­gan­i­sa­tion go for sim­u­la­tion mod­el­ling or op­ti­mi­sa­tion of com­plex struc­ture of mul­ti­ple global sup­pli­ers, many man­u­fac­tur­ing units and global clien­tele. But these costs also yield in long term re­wards as well.

On the other hand, or­gan­i­sa­tions may adopt for some simple mod­els for sup­ply chain risk man­age­ment, which may have de­fined pro­cesses in­cor­po­rated in the over­all can­vas of busi­ness. The be­gin­ning can be as fol­low: Iden­ti­fi­ca­tion of Risk: For each process and sub process and ex­ter­nal en­vi­ron­ment iden­ti­fi­ca­tion of risk fac­tors is start point. Com­pre­hen­sive iden­ti­fi­ca­tion of all pos­si­ble risk fac­tors of sup­ply chain will lead to a bet­ter process of mit­i­ga­tion strat­egy. Quan­tifi­ca­tion of risks: Once pos­si­ble risk fac­tors are iden­ti­fied, next is to quan­tify the risk fac­tors, in terms of mag­ni­tude and fre­quency. Risk Mit­i­ga­tion Strat­egy: For iden­ti­fied risk fac­tors risk mit­i­ga­tion plan and process im­prove­ment im­ple­men­ta­tion mech­a­nism should be de­vel­oped. The mit­i­ga­tion plan must have spe­cific guide­lines and broad guide­lines based on sce­nar­ios. The risk mit­i­ga­tion strat­egy must take con­sid­er­a­tion of cost ben­e­fit anal­y­sis also.

Doc­u­men­ta­tion and Com­mu­ni­ca­tion: Com­plete SCRM process must be doc­u­mented with de­tailed pro­cesses and au­tho­riza­tion ma­trix as part of risk pol­icy doc­u­ment.

The doc­u­ment must be com­mu­ni­cated to the re­spec­tive stake hold­ers and as­so­ci­ated ones in sup­ply chain, so im­pact of re­sponse can be ini­ti­ated in min­i­mal time frame and risk can be min­imised.

Wher­ever the im­ple­men­ta­tion is re­quired to pre­vent risk, the doc­u­ment must state time frame and re­spon­si­bil­ity

SCRM not only help in elim­i­na­tion of po­ten­tial , un­ex­pected costs, re­duced dis­rup­tions and time to re­cov­ery, but also sup­port in sup­ply chain per­for­mance im­prove­ment.

Vikas Kha­tri Founder, Avi­ral Con­sult­ing

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