Understanding the Benefits of Supply Chain Risk Management
There are many benefits to supply chain risk management (SCRM).
Before we dive too deeply into the benefits, we need to level-set on what supply chain risk management is and why it is important.
Supply chain risk management involves an organization taking steps to identify, assess, and mitigate risk to the supply chain.
Supply chain management can be thought of as the entire process of acquiring raw materials, making products, and selling goods across every stage of the manufacturing and distribution process. Both physical and virtual goods fall under supply chain management as well as the organizations that service products that are created and sold.
A properly functioning supply chain is critical to fulfilling customer orders which are the lifeblood of an organization. Potential risks that lead to supply chain disruption include natural disasters, acts of terrorism, lack of raw materials, transportation issues, and pandemics like COVID-19.
Fundamentally, without products and services to sell, organizations cease to exist.
The Benefits of Supply Chain Risk Management
Understanding the potential risks to the supply chain helps to highlight many of the benefits of SCRM. Global supply chains have been greatly impacted in recent years by pandemics and trade wars between nations.
Planning for disruptions caused by elements outside of an organization’s control is what SCRM is all about. Having a solid plan leads to a wealth of benefits, some are straight forward but others take time to realize the ultimate reward.
Eight Benefits of Supply Chain Risk Management
- Best practices are a benefit of SCRM by taking what has come before to improve what is now and what is to come. Process optimization is a great bi-product of best practices and aids in risk mitigation.
- Root cause analysis plans for if it happens, we keep it from happening again and minimize the impact. Real-time root cause analysis is often made easier with machine learning and artificial intelligence management software.
- Customer satisfaction has the goal of on-time supply, every time, which retains and returns customers. Amazon has perfected customer satisfaction by providing the same-day or next-day delivery of most goods.
- Supply chain risk profiles provide a running list of supply chain risks that help to build out profiles that form a catalog. The real benefit of supply chain risk profiles and a catalog is having the information on where to start first readily available.
- Practice scenarios are important to prepare for a potential supply chain disruption. Just like we conduct fire drills in homes and businesses, they are designed to minimize the impact of a real event.
- Software-based SCRM enables organizations to automate many manual tasks related to the supply chain through software. A software approach saves time, has a tangible return on investment, and can do more with fewer people.
- Regulatory and safety standards of excellence lead to an increase in customer acquisition.
- Competitive advantage by having an SCRM is apparent when a potential disruption of the supply chain is mitigated. When customers experience a supply network disruption firsthand, they often look for other suppliers that are more dependable.
Supply Chain Risk Management Takeaways
SCRM benefits define organizations as trusted leaders in their respective markets. Customer demand, supplier relationships, and supply chain planning all hinge on robust risk management.
The benefits of an SCRM program far outweigh any potential costs for implementation and operationalization. Most organizations need to take a step back and ask where they are with program maturity regarding supply chain planning.
The main reason to take a step back is that it is difficult to plan a program when you have not first assessed how mature the organization is with its supply chain and vendor management processes.
Typical supply chain maturity can be looked at as having either no SCRM in place, an informal managed program, formal management that is tactical, or a formal cross-departmental SCRM program that is strategic. Knowing where your supply chain program sits is key for understanding how to stay resilient tomorrow.