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Supply chain risk management: Here`s why a holistic approach pays off

by Editorial Office

SC risk management: Here`s why a holistic approach pays off

Growing levels of cybercrime, stagnant material procurement and the ongoing pandemic: a variety of developments have further intensified the supply chain crisis. Companies should therefore be preparing as well as possible for future challenges and invest in holistic supply chain risk management – ideally in advance. However, even in the midst of the crisis, implementing initial measures can still pay off. We shed light on the current risks and point out which steps are worth taking.

SCRM: Exposing vulnerabilities, assessing relevance

The reasons for the current crisis are manifold and can virtually overwhelm companies. It is therefore essential to maintain an overview and analyze which factors are particularly relevant to one’s own situation. A well-founded supply chain risk management (SCRM) can help: Thanks to a detailed and transparent insight into every area of the supply chain, risks and vulnerabilities can be quickly identified and disruptions can thus be eliminated.

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Supply chain risk factors

FM Global, one of the world’s largest industrial property insurers, recently unveiled the top six factors that pose the greatest risk to businesses:

  • Covid-19: One of the most significant reasons continues to be the pandemic which has created an imbalance in supply and demand through the so-called whip or bullwhip effect – especially with regard to chip-based products. The demand of the latter has risen significantly in the past few years.
  • Cybercrime: Operational Technology (OT) is driving an increased connectivity in more and more businesses. Unfortunately, this also increases the risk of unauthorized third parties exploiting OT supply chain security vulnerabilities to attack. A study by OT security expert OTORIO shows that 99 percent of participants have been victims of cybercriminals in the last twelve months.
  • Shortage of materials:9 percent of German companies reported serious problems with the procurement of preliminary products and raw materials in December 2021, according to an Ifo survey – a record figure. Affected to an above-average extent: Manufacturers of electrical equipment, the automotive industry and mechanical engineering.
  • Extreme weather conditions: Natural disasters such as the severe flooding in Europe and China caused interrupted train connections and production downtimes, as entire towns were destroyed. Ongoing global warming makes such events increasingly likely in the future.
  • Backlogs: Backlogs at ports could continue until the middle of next year, partly due to staff shortages. Goldman Sachs recently estimated that ships carrying $24 billion worth of goods are backlogged in California alone.
  • Trucking staff shortages: The International Road Transport Union estimates that 20 percent of driver jobs in Europe and Asia are vacant. While this development could accelerate the trend toward autonomous driving, it is hardly a short-term solution to this problem.

Reducing the risks for your supply chain by responding immediately

Companies that have a transparent supply chain and operate a holistic SCRM are at a clear advantage in this context: Data that has already been collected can be actively used for risk analysis. Logistics service provider Hermes International, for example, offers the evaluation of existing data with special risk analysis tools in addition to its SCM software – with profitable advantages: Managers can clearly identify weak points, evaluate the probability of certain scenarios occurring, and analyze the potential extent of damage. As a result, countermeasures can be actively taken in order to increase resilience. For this purpose, it is worthwhile to establish a crisis team that operates in a targeted manner with clear responsibilities. The following measures are available for this purpose:

Timely risk analysis, mapping and monitoring

  • An early warning system in the form of a risk analysis can help to identify disruptive factors such as storms, backlogs, etc. at an early stage. For this purpose, all information must always be available in an updated form. Permanent mapping is a suitable tool for this purpose, also for monitoring the company’s own supplier relationships. To ensure that the initiatives implemented are useful, monitoring of their effectiveness should always be carried out in the background: Thus, actions can be adjusted if necessary – after all, not all measures are suitable for every company.

Certificates and automated audits for the OT supply chain

  • Especially when it comes to cybersecurity risks in the OT supply chain, operators and manufacturers should invest strategically in security, as this is quite often the area where the greatest threat to the entire supply chain exists. Prior to delivery, vendor proof of hardware and software security as well as compliance in the form of a cyber certificate provides greater transparency and cyber resilience.

Supply chain risk management as a success factor

It’s never too late to implement long-term and, more importantly, holistic SCRM initiatives within a company – especially in times like today. That’s why, according to a McKinsey study, in the second half of 2021 an increasing number of companies have declared themselves ready to modernize their supply chain monitoring. After all, it was precisely the study participants who relied on tools with a strong focus on digitization and worked with artificial intelligence that were most successful in implementation.

The crisis is not overcome yet, but the negative influences can at least be minimized with the right strategies. Therefore, you can design your supply chain in a resilient way and look into a positive future.

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