2020 visited a host of challenges on businesses around the world, but one was as jarring as the empty supermarket shelves that appeared around the world at the start of the pandemic: supply chain disruption

For consumers, those empty store shelves were a temporary annoyance. For businesses, however, they were a painful reminder that any disruption in the supply chain can lead to dire problems in production and operations, loss of market share and profit, and deep drops in customer satisfaction. Without thoughtful planning, supply chain disruptions can be a mortal threat to business continuity. 

To draft an effective Supply Chain Risk Management (SCRM) plan, begin by mapping out as many nodes of your supply chain as possible. Then identify the potential risks associated with each node and its potential failure. 

Global supply chains are more vulnerable than local chains, and require a more detailed examination since they may include many levels of subcontractors; each contractor brings a new level of risk to the table. For instance, organizations that rely heavily on imported components may be at a higher risk for unintentionally incorporating counterfeit products—which can be very hard to trace, but lead to costly product recalls. 

1. Identify risks in the supply chain 

Potential risks to a supply chain can be divided into two broad categories: the risks you can know and control, and the risks you can’t. 

Your suppliers are the foremost example of your “known risks.” How well do you know them? Are they reliable? Do they have strong financial footing?  Are you doing what you can to build strong supplier relationships? Strong relationships will lead to a higher degree of transparency and openness, including when something goes wrong, such as a shipment of dud components.  

The risks you can’t control include climate disasters, political unrest in areas where you source materials, and cybersecurity risks your contractor is willing to accept even if they make you uncomfortable. Some other risks to consider: 

  • Financial risk. Prices and currency values constantly fluctuate; international agreements like Brexit may hinder import and export. 
  • Data breach. Breaches lead to loss of customer confidence and violations of compliance rules and regulations, which can lead to costly fines.  
  • Natural disasters. These span everything from earthquakes to wildfires, hurricanes to torrential rains, droughts and more.
  • Political unrest.  Labor disputes, protests and contentious elections can leave a supplier vulnerable or unable to deliver as promised.  
  • Environmental risks. For example, a critical raw material may be close to depletion, making it too expensive to extract; or a process used by a subcontractor could turn out to be environmentally dangerous. 
  • Pandemics. As we all now know, COVID obstructed travel and shipping for many months. 
  • Human error. Mistakes and malicious actions still happen, even for businesses that rely on sophisticated computer technology and information systems to run their production. 

2. Assess the potential impact of the disruption associated with each risk 

A well-designed supply chain risk management plan is a framework that can help with decision making and risk mitigation, even when your business is under extreme pressure because a failure has occurred. 

Companies can use enterprise risk management (ERM) to assess the potential cost of each identified risk, then rank those risks according to potential harm, and then devise a plan to recover as quickly as possible and return to ordinary levels of output. This last part is also known as risk mitigation, and it addresses how to deal with a potential risk once it manifests. 

Assume the worst and make sure you have strong contingency plans in place that are easily accessible to your staff, and have been clearly communicated across all departments and platforms. 

3. Evaluate and prepare for the next time 

Once you have established a strong SCRM plan, make certain it’s communicated clearly across all levels and departments of your company. This helps you train a risk-aware workforce that understands risk identification and analysis, and also how high-risk behaviors can harm the organization. For instance, you may not meet a production goal or a deadline, which could then lead to financial penalties.

Prepare for the worst. As you hire new suppliers and subcontractors, build a risk assessment component into your requests for proposals (RFPs). This will help you with ongoing risk analysis 

After each supply chain disruption, evaluate how you fared: what worked and what didn’t work, whether your contingency plans lived up to the standards you require, and whether you could recover quickly enough to avoid large losses. Analyzing each failure will help you improve your supply chain management in the future. 

Risk management tools

As you forge a path for your business through the pandemic and our highly interdependent world, many tools can help keep your business safe and structure a tight supply chain risk management plan. 

ZenGRC’s compliance management, risk and workflow management software is an intuitive and easy-to-understand platform that not only keeps track of your workflow, but also lets you find areas of high risk before that risk has manifested as a real threat. 

Worry-free compliance management is the Zen way. For more information on how ZenGRC can enable your CMS, contact us for a demo.