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Identifying risks in the supply chainThe first step in managing risks in a supply chain is identifying them. You probably have a good idea of some of the things that could go wrong with your supply chain. To really understand the scope of risks, however, you need to get input from other people who see, understand, and manage different parts of the supply chain.Following are some of the groups you should include in your process to identify supply chain risks:. Transportation. Distribution/warehousing. Purchasing. Information technology.
Risk management is an important leadership tenet meant to identify potential threats for elimination before they can derail and hinder the success of your business. But why should you be bothered with business risk management? Risk management is imperative to a business manager and key to controlling the structure and nature of projects.
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Accounting and finance. Legal. Sales and marketing. Key customers.
Key suppliersIt might be easiest for you to reach out to each of these groups separately, but you could also invite all of them to join a supply chain risk management committee. However you choose to engage this team, use their input to make a list of the risks that could affect your supply chain.You can create this list by brainstorming, and you may need to give people some ideas to prompt their thinking.
Here are some risk categories that you can ask your supply chain team members to think about:. Accidents.
Crime, terrorism, and war. Financial problems. Government regulations and politics. Management problems. Manufacturing problems. Market trends.
Natural disasters and epidemics. Supplier problems. Surge in customer demand. Technology trends. Transportation and distribution problems. Workforce and training issuesGetting people to think about these risks in concrete terms and write them down tends to be an eye-opening experience.
The odds that any one of these risks will materialize may be low, but the odds that at least one of them will materialize is high. It’s a good bet that something will surprise you, but you have no way to know which thing it will be. Classifying risks in the supply chainOnce you have identified your supply chain risks, you need to decide which risks are most important. You may be most concerned about the risk of a fire at your supplier’s distribution center, for example, or with the risk of disease outbreak that would shut down travel between countries.One approach is to classify risks according to their scope. Classifying risks according to their scope is useful when you want to decide how — or whether — to mitigate them. Risks fall into three general scope categories:. Global: Risks that affect everybody in the world.
Managing global risks is the responsibility of senior management, but your risk management planning can ensure that your leaders are aware of the global risks and their potential effects on your supply chain. Systemic: Risks that affect more than one facility or company. These risks could disrupt the entire supply chain, not just its parts. Systemic risks are especially important in supply chain risk management because you are looking at how all of the companies in a supply chain contribute to delivering value to a customer. Many times, people don’t realize how severe a systemic risk can be because they think about it in terms of how it affects them locally rather than how it affects the rest of the supply chain.
The responsibility for managing systemic risks is often shared between leaders in several different companies, so these companies need to collaborate in order to manage the risks effectively. Local: Risks that affect the people in a particular company or facility. Local risks are the responsibility of facility and operations managers and are often addressed in a business continuity plan.
Your supply chain risk management process can be useful in ensuring that each of these separate plans are complete and properly aligned.Scoring risks to the supply chainAfter you identify and classify the risks in your supply chain, the next step is scoring them. Risk scores can help you prioritize which risks you need to be most concerned about.You score risks based on how likely they are to occur (the probability) and how severe their effects would be (the impact). Then you multiply these scores together to get an overall risk score. There are many different scoring systems for probability and impact ratings, but here’s an example to get you started.On a scale of 1 to 10,.
Risk scoring is handy but not perfect. Just because a risk gets a low score doesn’t mean that you should ignore it, especially if the potential impact is severe. Any risk that has the potential for someone to get hurt needs to be addressed, even if the probability (and the risk score) are low.Risk scoring is like taking a snapshot of risks as they are today. You should keep your risk register up to date as circumstances change, watch for new risks to appear, and monitor changes in the scores of existing risks.Want to learn more? Use this guide to learn.
Risk management is the process of identifying and controlling potential losses. It is a standard business practice that is applied to investments, programs, projects, operations and commercial agreements. The following are common steps in a risk management process.
Identification
Giving all stakeholders an opportunity to identify risk. This can increase acceptance of a program or project as everyone is given a chance to document all the things that might go wrong. The diverse perspectives of stakeholders helps to develop a comprehensive list of risks. It is also possible to use databases of issues with that occurred with similar business processes, programs or projects in your industry. Knowledge sources such as lessons learned and the risk registers of historical projects can also be used.Analysis
Developing context information for each risk such as moment of risk.Probability & Impact
Assessing the probability and impact of each risk. These can be single estimates such as high, medium and low. Alternatively, they can be a probability distribution that model multiple costs and associated probabilities for each risk.Risk Treatment
Planning a treatment for each risk such as acceptance, mitigation, transfer, sharing or avoidance. Risks that are both low impact and low probability typically aren't treated.Residual Risk
Assess residual risk including secondary risks that result from risk mitigation, transfer or sharing.Risk Control
Implement identified controls for risk mitigation, sharing, avoidance and transfer.Monitor & Review
Continuously identify new risks as things progress, monitor implementation of controls and communicate risk to stakeholders.Overview: Risk Management Process | ||
Type | ||
Definition | The process of identifying and controlling potential losses. | |
Related Concepts | Risk Management »Risk Identification »Risk Control »Stakeholders »Risk Types »Lessons Learned » |
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