When it comes to impacts on the market, your suppliers' missteps can be as dangerous as your own. Indeed, a question many businesspeople should be asking is: Isn't it time to pay attention to risk management in the supply chain?
Risk management is nothing new, of course. Smart companies have always defined, prioritized, mitigated and audited all sorts of risks. As the supply chain has evolved new philosophies, procedures and relationship structures have evolved as well — along with new risks. We might well ask: What is the best way to manage supply chain risk? How do leading companies approach this task? How do they differentiate it from other risk management functions?
Sanjay Agarwal explores the impact of risks on SCM and discusses some SCRM techniques and philosophies.
Most interestingly, Agarwal recommends three organizational levels of Supply Chain Risk Management:
- Corporate risk management (level 3). This function has to manage the universe of risks discussed in the previous figure, including several that often reach the radar screen of CEOs. So when asked about this new area of supply chain risk, most don't have the resources for anything more than a quick audit.
- A cross-category supply risk manager (level 2). Many companies, knowing that they need to not just audit but mitigate and manage risks, are creating this new position. The supply risk manager has the tools, methodologies and intellectual capital to coordinate risk management across categories, and also to manage high-priority risks.
- Category managers (level 1). We call this level 1 because as the function evolves, category managers will perform risk management in addition to their other supply-chain responsibilities such as costs, pricing and contracts. After all, the amount of risk management required depends on the category: In some low-risk categories, such as office supplies, the focus should remain on cost reduction. In other categories, such as a single-sourced material for a high-profit product, risk management will be more important than squeezing out an extra 5 percent cost reduction. In other words, risk management is a logical extension of the category manager's responsibilities, and organizational structures will come to reflect that.
Who can share more best practices on the way Supply Chain Risk Management should be organized?