Often confused with supplier relationship management, risk management is actually only a small subset of what true SRM does.įind out our 10 golden rules of supplier risk management here. Supplier risk management falls under the larger umbrella of supplier management. The end result is a comprehensive supplier risk matrix that lays out potential risk factors, the impact it would have on operations as well as a plan to address and mitigate any potential supplier risks. Supplier risk management is a discipline, largely used by manufacturers, retailers, financial institutions and governments, that involves auditing, vetting and scoring suppliers based on the strategic value they bring to operations and their subsequent risk factors. That’s why SCRM is important and why gaining visibility over your suppliers is crucial. One warehouse fire, compounded with the existing capacity issues, caused a cascading disruption effect spanning into multiple tiers and multiple industries. These chips go into everything from cars, phones, computers, gaming systems, household appliances and even advanced military and defense systems. Staying on the semiconductor shortage example (if you haven’t checked out that link yet, it’s worth the read), the shortages aren’t just affecting computers or cars. Read more about President Biden’s supply chain review hereĪ single disruption can cost millions, if not billions of dollars ( looking at you Suez Canal) and in some cases, can cause a domino effect of late shipments, decrease capacity, and severely affect the operations of buyers several tiers downstream. Here’s an example of how quickly disruptions can strike and bring a healthy supply chain to a screeching halt. Simply put, it’s one of the most important areas for a business, especially considering the risks and disruptions that have been piling up recently.įrom pandemics and natural disasters to financial and reputational risks there is a wide gamut that you, as a supply chain professional, must keep an eye on. Supply chain risk management involves a firm grasp of supplier management, conducting internal and external audits, an understanding (and visibility) of your n-tier supply chain, and the development of a crisis response playbook. Supply chain risk management (SCRM) is the process of creating a strategy and working to identify, assess and mitigate the risk in your entire supply chain.Ī good program will help you secure (and build) better supplier relationships, prevent supply bottlenecks and ensure your company is operating both legally and ethically. What is Supply Chain Risk Management and Why is it Important?
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