The supply chain arguably faces more risk than other areas of the company due to its global nature and its systemic impact on the firm’s financial performance. Risk is a fact of life for the supply chain professional due to the long list of forces that drive supply chain risk. These include quality and safety challenges; supply shortages; legal, security, regulatory and environmental compliance; weather and natural disasters; and terrorism.
Companies with global supply chains face an addition potential for risk, including, but not limited to, the longer lead times needed in the global environment; supply disruptions due to global customs, foreign regulations and port congestion; political and/or economic instability in a source country; and changes in economics such as exchange rates.
The scope and reach of the supply chain cries out for a formal, documented process to manage risk. But without a crisis to motivate action, risk planning often falls to the bottom of the priority list. The low priority for managing risk in companies is puzzling. After all, supply chain risk management is a very popular topic at conferences and has been written about extensively in books and articles. However, in spite of all of the hype and discussion, we still see the vast majority of companies giving this topic much less attention than it deserves.
But there’s a silver lining. Risk cannot be eradicated, but it can be planned for. Having a risk management plan can even be used as a competitive advantage, since so few firms have one. Preventing disruptions down the supply chain dramatically impacts competitiveness in general. The repercussions of supply chain disruptions reach far and can devastate the financial health of the firm. An effective risk management process for the supply chain can help companies avoid missed customer commitments, stock outs, reduced earnings, higher inventory levels, increased time-to-market cycles, reductions in product quality, and negative impacts to brand perception.
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