Top 10: Supply Chain Risk Management Strategies

It’s fair to say supply chain risk has become one of the most discussed global topics in recent years – and there’s very good reason for that.

Supply chains were, understandably, hit hard by the COVID-19 pandemic, before geopolitical issues and economic strife set in. 

The far-reaching impact of supply chains has made risk management a major talking point, with companies scrambling for ways to keep operations running smoothly.

Here, Supply Chain Digital takes a look at the top 10 supply chain risk management strategies.

10. Create numerous logistics contingency plans

It seems straightforward, but companies should have in place a logistics contingency plan – and not just one, either, but several back-up plans to account for as many eventualities as possible. 

A useful starting point is conducting research into which suppliers and geographies are more vulnerable to disruption, auditing logistics providers based on their own plans, and diversifying the supply chain. 

Multi-sourcing and regionalised sourcing, discussed later on in our top 10, come into this.

9. Use the PPRR model

PPRR has become a globally-recognised risk management model, helping companies to follow a step-by-step plan. 

It stands for:

• Prevention: This stage involves taking precautionary measures with the aim of avoiding risk scenarios
• Preparedness: Ensuring a contingency plan is in place to combat potential risk
• Response: Executing the aforementioned contingency plan to mitigate the impact of a disruptive scenario
• Recovery: The process of returning to a normal level of function following a risk event as soon as possible

8. Improved transparency

While supply chain visibility is focused on a company’s own ability to monitor activity within the chain, transparency stretches beyond this.

It provides external stakeholders, including customers, investors and regulators, with insights into the production and distribution of goods – covering important ESG topics like labour practices and environmental impacts. 

Ultimately, offering broader access to information about each stage of the process to all parties is likely to improve supply chain performance. 

7. Regionalised sourcing 

Firms are advised to consider nearshoring as a strategy – in other words, locating their suppliers and distributors nearer to their operational centre or the final destination of their supply chains. 

Although using regional suppliers might mean incurring higher upfront costs, a reduction in travel time can bring savings and mitigate environmental risks, an issue which became apparent during the pandemic as entire nations were cut off from each other. 

It’s a strategy with the potential to come to the rescue during periods of instability, while decreasing cycle times for product delivery.

6. Track freight metrics 

Irrespective of a company’s position within the supply chain, it goes without saying that it’s crucial to work alongside freight carriers capable of delivering consistent, reliable results. 

Metrics worthy of monitoring include loading time, transit time, maintenance scheduling and average number of stops along a particular route. 

By analysing this data, organisations will undoubtedly be better placed to choose a carrier which is capable of meeting their needs. 

5. Simulate risk scenarios 

Data and analytics can be a powerful tool in supply chain risk management strategy. 

Companies would be wise to use data science and predictive analytics to run simulations of scenarios like supply shortages or surges in demand, which could help them to plan more thoroughly for such eventualities. 

Of course, the pinnacle would be the ability to predict risk events long before they actually happen. We’re yet to reach this stage, but advancements in technology have made it a realistic possibility in the not-too-distant future.

4. Tighten cybersecurity

Supply chains serve as a potential entry point into a company's systems due to the lack of control over the security measures implemented by partners further along the supply chain.

Proof of this is that cybercriminals are now more frequently targeting companies by initially breaching third-party vendors. Okta, for example, has fallen victim to multiple breaches in recent years, including as the end victim of a supply chain attack.

To combat this, companies should establish compliance standards for all third-party vendors, encompassing manufacturers, suppliers and distributors. Employees should also be comprehensively trained in cybersecurity protocol.

3. Enhanced supply chain visibility 

The upside of gaining a comprehensive understanding of all elements of the supply chain is that companies will find themselves better positioned to identify potential pitfalls – before they escalate and damage operations. 

It’s sensible to harness the power of data and analytics to gain greater visibility of suppliers and their financial situation, aiding the selection process for suitable vendors. 

Ultimately, the likelihood is that firms will lessen their exposure to supply chain risks because their business relationships are more reliable. 

2. Monitor risk constantly and in real time

Another seemingly obvious strategy, but companies cannot afford to take their eye off the ball when it comes to supply chain risk management. 

Potential risk factors must be constantly monitored and responses factored into contingency plans which, in turn, should be regularly assessed. 

Emerging technologies like AI, machine learning and advanced analytics can help with this, facilitating automated monitoring of various aspects of the supply chain. The result is valuable insights, enhanced security and the opportunity for staff to focus on more ‘human’ tasks. 

1. Multi-sourcing 

An alternative to or variation on regionalised sourcing, multi-sourcing has, arguably, never been so crucial to supply chain risk management given recent global events. 

It’s a practice that pretty much does what it says on the tin: sourcing critical components from multiple vendors, perhaps based in multiple locations, to decrease the likelihood of disruption having a detrimental impact. 

Clearly, overreliance on a single supplier increases a company’s susceptibility to failure. However, as Microsoft puts it, having numerous suppliers will only increase resilience if a good relationship and clear communication is established. 

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