Developing a strong supply chain risk management strategy

The world is a difficult place to be as a supply chain expert today and will only get more difficult in the future. We're living in a time of near unprecedented uncertainty in the modern era and the risk it brings to supply chain management is immense. To manage the potential chaos, you must be proactive and prepared to shift your strategies on a dime. From natural disasters and wars, to trade disputes and unreliable suppliers, you must be ready for everything.

How to create a strong risk management strategy.

Train your team in risk awareness and build organizational habits around it

Risk management is built from the ground up. When you're trying to make plans around what could go wrong in your organization, you need to build a framework that allows individual employees to not only spot potential risks, but to report them with no fear or reprisal. Regular training programs on risks for your company and fast-response drills are integral to being ready when something goes wrong. These processes should be well known at all levels of your organization and practiced regularly. Another important lesson to learn, as underlined by McKinsey, is that employees should not worry about coming to their managers or executives with problems or mistakes they've made. A culture of blame, shooting the messenger and heavy punishment means that potential risks or mistakes in a company will remain hidden out of fear.

One acronym could save you a lot of headaches

While a common acronym in the supply chain world, it's always best to keep prevention, preparedness, response, and recovery (PPRR) front of mind when you think about developing your risk management strategy. In order to make your plan fully effective, you should be doing the following for each step.

Prevention

An ounce of prevention is worth a pound of cure. Building the aforementioned organizational habits of risk management is just the start. Your organization should also be building a comprehensive risk management plan in order to properly identify and mitigate risks before they happen. You should also be conducting regular reviews of both your internal processes as well as of the readiness of your suppliers to deal with risk and unforeseen events.

Preparedness

This is the simplest step, the best way to prepare is to develop a list of your known risks and create strategies and tools to react quickly.

Response

You must be ready to respond immediately in the face of a supply chain crisis or employee mistake as the effects of inaction can compound the problem. Having a rapid response team trained in common situations and defined before a problem can arise will help mitigate the effects of the issue.

Recovery

In order to ensure your business can continue as normal, your organization should develop strategies in order to recover in case of a supply chain emergency. From having backup sources for crucial materials to having a public relations plan in place in case of shortages, having a clear idea of what to do in the most dire circumstances is critical to bouncing back after a setback.