Risk Management

Supply Chain Risk Management (SCRM) is “the implementation of strategies to manage both every day and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity”.

SCRM applies risk management process tools after consultation with risk management services, either in collaboration with supply chain partners or independently, to deal with risks and uncertainties caused by, or affecting, logistics-related activities, product availability (goods and services) or resources in the supply chain.

Supply chain risk is a function of the likelihood of an event’s occurrence and its impact. Although this is the most popular methodology for quantifying risk, a drawback in the context of supply-chain risk is that it requires assessing likelihood or probability of many different event types across a few supply-chain organizations and locations (potentially hundreds of thousands for, say, a major vehicle manufacturer). Thus, the range of possibilities is huge, frustrating and limiting the analysis possible in practice. The methodology may be appropriate for a smaller subset of locations and/or types or categories of risk.

Most companies rely on ‘risk scores’ of various types such as financial risk score, operational risk score, resiliency score. These are readily available, relatively simple to understand and analyze, and hence can be effective, at least for first-pass identification of risks worthy of further analysis. Standards and certified compliance (such as ISO 9001) are also effective ways to raise the baseline to a known level.

QSG has a process to assess supplier risk that follows three different steps, with methodologies depending on the level of the analysis.

Level 1: Supplier Risk Indexing

This is a preliminary supplier assessment, using information already available. The main objective is to rank suppliers in terms of their relative priority considering, for instance, their position within the value chain, the availability of alternative suppliers or substitutes and related factors.

Level 2: Supplier Screening

Here, suppliers are assessed based on information collected using historical and market-driven data that incorporate ad-hoc criteria specific to the organization. 

Level 3: Supplier Audit

Supply chain audits of your suppliers, factories and global operations are an essential component to safeguarding your brand. Compliance with social responsibility, sustainability, trade security, anti-bribery, health and safety, conflict minerals and product quality assurance (GMP/GDP) are challenges that all organizations face. The risks are endless, and they continue to expand as a consequence of globalization.