Today’s supply chains are so intricately interwoven into a vast network that the shock waves of a seismic event like a recession are felt across the globe. Such cascading interdependence has brought to the fore the importance of Supply Chain Risk Management (SCRM) as never before. Organizations need to take proactive steps to mitigate both traditional and non-traditional risks and safeguard their supply chains.

In my opinion, SCRM processes already exist in supply chain operations, e.g., product quality checks, keeping buffer inventories, use of derivatives in procuring commodity raw materials, etc. However, since these processes are executed without embracing SCRM in a wholesome manner, they lack the maturity to mitigate all potential supply chain risks, especially the unpredictable ones. Worldwide operations increase vulnerability to worldwide risks – geopolitical, natural, and man-made – that can fundamentally challenge the organization’s strategic direction. Unfortunately, day-to-day supply chain processes are incapable of withstanding the impact of such unanticipated events. Therefore, there is a need to reassess exposure and uniformly carry out risk management across all products, markets and operations with a consistent view of the organization’s risk appetite. This is essential to build a resilient supply chain that can help the organization control risk, optimize opportunities, and maximize profitability.

The Supply Chain Council defines SCRM as the systematic identification, assessment, and quantification of potential supply chain disruptions with the objective to control exposure to risk or reduce its negative impact on supply chain performance. Potential disruptions can either occur within the supply chain (e.g., insufficient quality, unreliable suppliers, machine breakdown, uncertain demand, etc.) or outside the supply chain (e.g., flooding, terrorism, labor strikes, natural disasters, large variability in demand, etc.)

To manage these perils, organizations must develop continuous strategies to control, mitigate, reduce, or eliminate risk. In this series, we will discuss the 6 essential steps described in SCOR 9.0 to carry out an effective and holistic SCRM program. The six steps are:

• Build: Who is the sponsor?
• Discover: What will the program cover?
• Analyze: What is the organization’s risk tolerance?
• Assess: Where and how big are the potential risks?
• Mitigate: How will the risk be eliminated or mitigated?
• Sustain: How can SCRM be integrated into day-to-day operations?

We will discuss Build and Discover phases in this post. The remaining four steps will be discussed in following posts.