Supply Chain Risk and Resilience: Practical Guide for Supply Chain Professionals

Risks has become major concerns over the years. The reason is that there are new types of uncertainties emerge, such as, terrorist activities, natural disaster or economic collapse. As a result, this article will present 2 holistic approaches towards risk in supply chain.

Supply Chain Risk Management
Risk classification, risk identification and risk mitigation are concepts that supply chain professionals borrowed from financial discipline during 1970s which is based on probability distribution historical data so on, more details are as below,

1) Risk Classification
The language of risk management is a bit ambiguous. Anyway, professionals at Supply Chain Council has put together a framework to facilitate common understanding about category of risk. Scope of supply chain management is expanding then supply chain professionals may have to also handle almost every kind of enterprise risk. In order NOT to overload the initiatives, boundary should be identified. For example, HR risk and IT risk should be handled by HR and IT dept. with support from supply chain.

Risk Classification

2) Risk Identification

Level of details are important when it comes to risk identification. Brainstorming within the organization is usually the method of gathering risks. Too much or too specific details can be overwhelming and discouraging because you may feel you can't win them all. Then, broader view of risk can be addressed and resolved more effectively.

Center for Transport and Logistics at MIT has conduct a research called Global SCALE risk initiative. This research identified risks and their impact to global supply chain management. Incorporating results from SCC and MIT, then we can classify and identify risk as below,

Risk Identification

3) Risk Mitigation

There is no silver bullet solution for risk mitigation. Therefore, only continuous improve by implementing various kind of best practices will ensure that risk exposure can be minimized. Selected best practices to reduce supply chain risk are listed below,

- Humanitarian Logistics: humanitarian organizations are the real pro in handling disaster risk. Learning how they prepare, respond and exit from natural disaster incidents will definitely equipment you with the knowledge to restore your supply chain quickly.

- Supply Chain Insurance: now companies like Zurich , Lexington Insurance or Wells Fargo are offering supply chain insurance that protect against potential supply chain disruption. This is a very innovative product which will help reduce financial risk.

- ISO/TC 260: this seems to be the only unified HR management platform. This standard is proposed and developed by The American National Standards Institute (ANSI) and Society for Human Resource Management (SHRM). Then, HR risk can be solved more systematically.

- Agile Supply Chain: this concept aims to understand market uncertainty or market risk and try to increase the flexibility of the whole supply chain.

- ISO 14000-2004: minimize environmental risk using comprehensive environmental management system is a good starting point.

- Value Stream Mapping: based on lean concept, value stream mapping can be used to identify distribution risk and driving waste out of the whole supply chain.

- ISO 28000-2007: if you want to learn how to minimize security risk and IT risk, this is the holistic framework for you to establish, implement and maintain sound security management system.

- ISO 28002-2011: this framework will help you eliminate regulatory risk by developing and implementing good policies for supply chain management.

- SCOR Model: if you want to reduce operational risk, SCOR model is the ideal solution to analyze operational issues effectively.

- OSHA: many countries have adapted OSHA regulation to reduce safety risk but in the US it's mandatory issue.

- Supplier Relationship Management: supplier risk can be managed properly if you know how to segment supplier, establish relationship, measure performance, conduct audit and train your suppliers.

Supply Chain Resilience

Supply Chain Resilience is the emerging topic. In 2000, UK faced with transportation disruptions from fuel protests. Four years after this incident, Martin Christopher and Helen Peck defined resilience as

"the ability of a system to return to its original state or move to a new, more desirable state after being disturbed".

Resilience concept got the attention of supply chain practitioners due to recent natural disaster such as Tsunami in Japan followed flood in Thailand in 2011. The most recent work is from Pettit et al 2010. He conduct a survey with participants from world leading companies. Then he used the results to develop supply chain resilience model, which is summarized and produced as a presentation as below,