What is Supply Chain Risk Management?

Supply chains are booming as businesses strive to maintain or elevate their competitive advantage and meet worldwide consumer demands.

However, supply chains are full of complexities, vulnerabilities, and risks (like increased raw material or labor costs, environmental hazards, and asset thefts). Businesses should adopt robust frameworks, tools, and software that help mitigate and safeguard against these risks.

These tools allow supply chain leaders and stakeholders to identify risks, strategize corrective measures, and pinpoint ways to lower supply chain delays. Today, most software comes with solutions that:

• Forecast risks
• Share solutions to mitigate risks
• Monitor supplier performance
• Maintain supply chain visibility
• Create dashboards to gain a comprehensive view of supply chain metrics

In this post, we’ll look at what supply chain risk management is and the common types of supply chain risks. We’ll also look at how businesses like yours can identify, prevent, and fight these risks with a supply chain visibility software like CalAmp.

What is supply chain risk management?

A supply chain is an interdependent set of activities that transforms raw materials into goods and takes them to consumers. These activities include production, transportation, inventory control, and logistics.

Supply chain management is essential to meeting consumer demands in a timely manner. The global supply chain management market is ever-growing: In 2020, the supply chain management market was valued at $15.85 billion, and it’s expected to reach nearly $31 billion by 2026.

Supply chain risks can be defined as any event that may lead to a loss of product quality, quantity, safety, cost, delivery time, or customer satisfaction.

The effects of supply chain risks can be expensive, long-lasting, and harmful. This has caused an upsurge in supply chain risk management (SCRM) practices and tools. SCRM is an approach that uses information technology and business processes to manage risks in the supply chain.

Why is supply chain risk management important?

SCRM is a systematic approach to managing risks throughout the entire value chain of goods or services, from raw materials to finished products. It allows organizations to deliver quality products at competitive prices while minimizing costs and maximizing profits.

Here are some more benefits of SCRM:

• Identify problems before they occur and save costs: Organizations expect some or the other kind of supply chain disruption every 3.7 years, resulting in heavy financial losses. For example, natural disasters, inflation, and legal or economic problems can result in your supply operations stopping for a while. As a result, organizations may need to cover the legal liabilities, face penalties, or bear product damage or loss. SCRM helps organizations proactively identify risk events beforehand and prepares them to monitor the supply chain effectively. It also helps improve response times and minimize revenue loss.
• Keep brand image safe: SCRM lets you provide quality services to customers on time and helps keep environmental and legal issues at bay. This maintains the organization’s brand reputation in the market.
• Design best practices: SCRM helps supply chain leaders learn from what worked and what didn’t so that they can design best practices to better handle risks in the future.
• Enhance security: As mentioned earlier, SCRM lets you detect vulnerabilities in advance. With an SCRM framework, you can monitor risks and take action to nip the threats in the bud before they can cause any damage.
• Keep up the competitive edge: Since SCRM helps you maintain your brand reputation and allows you to serve customers efficiently, it helps you stay ahead of the competition and attract new investors.
• Keep operations running smoothly: SCRM lets businesses continue their operations without any pause and ensures business continuity.

Supply chain risks to consider

If you want to assess, track, and avert supply chain risks, it’s essential to understand the different types.

Here’s a look at the common types of supply chain risks:

• Quality risk: The inability to replace defective materials in a product quickly or use of low-quality raw materials can lead to higher production and distribution costs.
• Lead time risk: Higher lead times arise due to factors like customs and port congestion. This means suppliers have to handle more inventory, which increases the risk of shortages.
• Reputational risk: Supplier behavior, late deliveries, or defective products can damage a brand’s reputation.
• Environmental risk: Events like extreme weather conditions, natural disasters like earthquakes and wildfires, and pandemics can all disrupt the supply chain.
• Human errors: Accidental fires or explosions can bring a supply chain to a halt.
• Technological: Data and intellectual property theft, network failures, security breaches, and foreign invasions into a data network can also cause supply chain vulnerabilities.
• Legal: These may include conflicts between various business parties, non-conformance to regulations, patent infringement, and lawsuits.
• Economic: Currency and exchange rates, price fluctuations, energy shortages, demand shocks, increases in procurement, and transportation costs create supply chain disruptions. Asset cost increases due to inventory damage, theft, or related insurance claims are also economic risks.
• Geo-political: Political conflicts, trade wars, corruption, piracy, illegal trade, terrorism, and social unrest can all significantly affect supply chains.

Now that we know the types of supply chain risks that can occur, let’s learn about a framework that can help you oversee these risks.

Risk management for supply chain: A simple framework

To manage risks, organizations need to create a framework that can allow them to respond to risks quickly.

Here’s a simple, five-step approach you can adopt to manage supply chain risk.

1. Identify risk factors

The first step is to identify the types of risk that your business may encounter. Are they environmental risks, lead time risks, or economic risks? For example, a fashion business must be equipped to handle lead time risks because fresh trends have to reach the markets fast.

For each risk, you can further define the following:

• The scope of the risk and associated problems that may occur
• Key people to manage risks, their skill sets, and the tools they’ll need
• Stakeholders’ risk tolerance

2. Assess the risk factors

The second step is to estimate the possibilities of a risk event occurring and the organization-wide consequences or impacts of the risk. For example, you can estimate a particular risk’s financial impact.

Businesses can also rate and quantify risks to remove the guesswork. At this step, it’s also important to measure the strategic impact of risk. For example, if a supplier shuts down their factory, it can hamper product availability and affect your relationships with trade partners.

3. Respond to risks

At this step, you need to develop mitigation strategies to respond to risks. This can be done by designing actionable toolkits and models. For example, to make your supply chain more resilient, you may want to deal with multiple suppliers at once.

You may also want to look for suppliers that are local or close to your center to minimize cycle times for production. Or, if you operate in a high-risk area with frequent hurricanes, you may want to stockpile products ahead of the hurricane season.

4. Monitor and evaluate

Once you design your action plan against risks, it’s time to evaluate how your solutions are working. Check performance reports and evaluate which plans need refinement.

5. Iterate for continuous improvement

Making a framework just once isn’t enough. External and internal conditions keep changing, so businesses must aim to constantly update their risk management strategies based on results and feedback.

But how do you put this framework into action?

You can do it through traditional methods, like spreadsheets; however, many companies are turning to supply chain management software. Because SCRM is a complex process with many elements, having all the information in one system helps it to stay organized and accessible.

Mitigate risks by implementing a supply chain management software that’ll help you:

• Monitor supplier performance
• Enhance visibility across your supply chain
• Access performance information online
• Reduce response time to risk through alerts - saving significant time and cost

Let’s look at how CalAmp helps you with all of the above and more.

CalAmp’s supply chain visibility solution

CalAmp enables resilient supply chain operations across all modes of transport through smart logistics. It helps you maintain quality, compliance, and brand identity with the following solutions.

Complete visibility to manage risks

Supply chain visibility is paramount to identifying supply chain risks and responding to events quickly.

Supply chains have conventionally been monitored via Electronic Data Interchange (EDI). EDI transmits order placement details, invoicing updates, and shipment notifications. However, communication is difficult when goods are in transit. This stage is often referred to as a blind spot.

Additionally, loads are often handled by third-party logistics (3PL), which further hinders visibility. This can result in cargo theft, contamination, and the introduction of expired or counterfeit goods.

CalAmp’s fleet management and supply chain visibility software solve these problems. Our fleet management software enables two-way data communication: GPS-based tracking that reports vehicle health and location while giving drivers traffic updates and navigation info (like the fastest route to a destination).

Everything happens in real time, so you get the most updated data about your asset and shipment location through supply chain visibility software. For example, you can:

• Connect shipments from multiple carriers across any method of transport — ocean, air, road, and rail — and check carriers’ visibility from a single screen.
• Share ETAs with customers with live location monitoring, and reduce customer inquiries about arrival.
• Keep an eye on weather and traffic situations with smart map overlays so that you can rapidly change your operations to avoid disruptions.

Download our Total Supply Chain Visibility ebook to learn more.

Cold chain and environment-monitoring solutions

Real-time event data, like temperature alerts, can help avoid losses and respond to critical events faster.

CalAmp supply chain visibility software comes with real-time temperature tracking. It sends a notification if sensitive shipments fall beyond a pre-set threshold, reducing spoilage rates and saving shipment losses.

Environmental sensors track temperature, light, shock, and humidity for extra-sensitive goods down to the pallet and package level. They log conditions in real time and immediately send alerts to you via SMS or email if an anomaly (like temperature or light variations) occurs. You can also get visibility into trailer health while receiving fuel alerts to keep the cargo going.

Plus, some devices can track ocean and airplane cargo even without network coverage. For example, some cargo below -20°C (-4°F) needs unique sensor tags, like our CalAmp Xtreme Temperature Tag. It monitors temperatures of assets as low as -270°C — colder than dry ice (-78.5°C) and liquid nitrogen (-196°C). It then sends the data to a gateway via Bluetooth Low Energy (BLE).

In-transit asset monitoring

To track assets on the road, CalAmp sends instant notifications when the trailer door opens, the trailer stops, or packages are opened or tampered with. With our geofencing functionality, you can set geofences that alert you when parcels or equipment go out of range.

You can also view the in-depth reporting dashboard, which gives details on fuel usage, temperature patterns, detention times, etc. These insights allow you to optimize your resources and improve operations.

In addition, you can check how your drivers handle assets. CalAmp can help you detect harsh driver behaviors so that you can coach them to improve these behaviors or allow them to take a break if they’ve been driving for a while. You can also install video dash cams — so if any accidents happen, recorded videos can help you pinpoint what exactly went wrong and exonerate drivers if they weren’t at fault.

Compliance

Not complying with laws can attract penalties and damage your reputation. To make compliance hassle-free, the apollo Electronic Logging Device (ELD) solution from CalAmp helps you:

• Record Hours Of Service (HOS) data with an end-to-end ELD solution
• Manage inspections easily with electronic Driver Vehicle Inspection Reports (DVIRs)
• Automate International Fuel Tax Agreement (IFTA) reports

Finally, CalAmp automatically records temperatures to provide temperature excursion monitoring reports on demand that keep shipment integrity intact. We also offer an easy process for a chain of custody that ensures compliance.

Asset maintenance

Managing a supply chain means managing assets and fleets. If they break down, the supply chain can be hugely affected.

This is why CalAmp helps you create maintenance schedules based on fuel usage or mileage to maintain vehicle health.

Plus, if a vehicle breaks down, the driver can generate a diagnostic trouble code (DTC) via email or SMS. Dispatchers can then send them to the closest service station or send assistance.

Try CalAmp to manage supply chain risks effectively

CalAmp’s supply chain visibility software lets you serve customers promptly, helps maintain your brand reputation, and gives you a comprehensive view of supply chain processes so you can plan for risks ahead of time.

Request a demo to gain end-to-end supply chain visibility with CalAmp.