Supply chain risk management (SCRM) was developed in the last decade as a result of the financial meltdown of companies in 2008, due to companies’ meltdown. SCRM was also developed due to supply chain problems occasioned by cancellation of customer orders, volatility in commodity markets, and bankruptcy of suppliers (Fan & Stevenson, 2018). It led to the genesis of risk management efforts by business corporations to avert such occurrences in the future. The situation had been triggered by the outcry of companies that had suffered losses in 2008 as a result of the absence of SCRM. SCRM was specifically developed to safeguard reputation, branding, and the competitive advantage of companies.
Supplier solvency and supply quality were the key matters used in the development of SCRM as they are known to determine the profitability and success of a business enterprise. According to Fan and Stevenson (2018), SCRM is the company’s ability to acknowledge and be in charge of its money-making, aura, and collective risks in the supply chain. It is an extremely fragmented process that requires the input of various actors in the business environment, ranging from the management of companies to manufacturers and outsourced supply agents. There are various techniques for controlling supply chain risks; they can be shared, transferred, avoided, reduced, or accepted as they are. Information sharing among supply chain risk management actors significantly reduces the extent of supply chain risks.
SCRM can only be achieved by the development of a platform that would synchronize the flow of goods with the flow of information among the involved actors. It would avert misinformation in the supply chain while incorporating time consciousness into the transport and handling of goods. Improvement of product designs by manufacturers as well as good industry knowledge by supply chain actors reduces deterioration of goods. It also eases transportability and storability of supplies (Munir et al., 2020). Insurance would be of great importance in SCRM were it not for the vagueness of the logistical aspects of transportation, warehousing, and handling of goods in the supply chain. This incorporates a lot of issues that may render insurance policy contracts unenforceable. Lack of professionalism in the transport sector, a key factor in the supply chain sector, may also render it impossible to formalize the supply chain in order to make it insurable. SCRM is an evolving concept tasked with the most important agenda in the business environment of maintaining, safeguarding, and improving shareholder value.
Chief procurement officers should develop relevant metrics for supply performance, recovery plans in the event of supply chain disruptions, and monitoring techniques for assessing supply chain risks in their organizations (Saglam et al., 2020). Telecommunication and unplanned IT outages are the most frequent causes of supply chain disruption in the modern business world. Many companies have automated their systems and are heavily reliant on the availability of the internet for smooth and seamless operations. In the event of internet outages, such companies suffer loss of productivity and serious damage to their brand and reputation. As a result of this new normal in the global supply chain, more manufacturing and global sourcing are required, as well as longer supply lead times and proper management of supplies from far-flung corners of the world.
There are six principles that have led to the birth and development of supply chain risk management (SCRM) as a discipline. They include the requirement for business partners and suppliers to perform due diligence in their operations, the development of contingency plans and the identification of unknown risks, increasing global visibility and diversification of supplier portfolios as well as operational flexibility, identifying and measuring supply chain risks, integrating risk management practices into all company operations to ensure alignment, commitment, and understanding, and making prudent decisions. Lastly, supply chain sustainability is vital in terms of moving the value of a company in times of demand and supply volatility.
Can Saglam, Y., Çankaya, S. Y., & Sezen, B. (2020). Proactive risk mitigation strategies and supply chain risk management performance: An empirical analysis for manufacturing firms in Turkey. Journal of Manufacturing Technology Management. Web.
Fan, Y., & Stevenson, M. (2018). A review of supply chain risk management: Definition, theory, and research agenda. International Journal of Physical Distribution & Logistics Management. Web.
Munir, M., Jajja, M. S. S., Chatha, K. A., & Farooq, S. (2020). Supply chain risk management and operational performance: The enabling role of supply chain integration. International Journal of Production Economics, 227, 107667.