How to Manage Supply Chain Risk

The adage “cargo at rest is cargo at risk” is just the beginning

Historic and recent events have proven the need to identify and manage supply chain risks. A single event — such as the 2011 earthquake and subsequent tsunami off the coast of Japan — can have potentially catastrophic impacts on a number of supply chain attributes, including critical infrastructure, communications, logistics, supply, manufacturing and distribution.

Successful supply chain risk management programs are able to anticipate, prevent, protect, manage, respond and ultimately recover from these potentially undesirable and disruptive incidents.


Risk Factors to Consider

Understanding risk factors as they relate to the transporting or storing of goods — domestically as well as internationally — is the first step in any supply chain risk assessment process. It is critically important to identify and rank, in order of importance, the risk factors that are of most concern/value in developing any proprietary risk mitigation program.

Below is a list of some very basic factors worthy of consideration. In the creation of a risk-based “matrix,” any or all of these factors might fit a particular shipping scenario — and could be based on the given product, the region it will travel through or be stored in, as well as the means by which it will reach its ultimate destination.

* Mode of conveyance/storage: All modes of transportation — air, sea, rail and trucking — each presents different forms of risk based on the methodology used in each unique circumstance; thus, what works at sea may not work in the air. Certain types of storage scenarios, particularly when things like environmental conditions are factored in, may or may not fit your supply chain security requirements.

* Routing of freight: Through what area does your supply chain flow? Which of these areas pose a greater risk from a criminal element, natural events and/or availability of logistics support?

* Logistics Service Provider: What types of logistics service providers are you planning to use to ship and store your products, and what precautions do they take to ensure the security and integrity of your goods?

* Duration of a shipment: The duration of shipping window must also be weighed, depending on the potential exposure of a shipment to high-risk areas. Longer shipments potentially mean more hand-offs and possibly more stops — and more opportunities for undesirable parties to gain access to the shipment. A very common phrase used in the supply chain security discipline is “Cargo at rest is cargo at risk.”

* Attractiveness of freight: Different types of goods, based on popularity and ease of liquidation, pose different levels of risk. A cargo container full of consumer electronics would obviously be a bigger target than a less-desirable shipment.

* Market impact: A basic premise of a risk program is to protect the product; however, if that fails and your security protocols are breached, what would the impact be to your company’s ability to meet market demands based on such a loss?


Four Components of a Risk management Program

Critical to the successful implementation of a supply chain risk mitigation strategy is top management’s endorsement, which would include the nomination of a project owner as well as an implementation team. As with any enterprise leadership, mandate and commitment comes from the top — in the form of resources, engagement, support and guidance.

An integrated and engaged upper management team should communicate a clear mandate within the organization. They should also help to identify risks, decide on strategies to mitigate those risks, as well as participate in process review and improvement.

The next most critical implementation component is to have a documented plan — a company strategy and list of written program guidelines and operating procedures relating to your supply chain security initiatives. Having a documented program not only helps define your objectives, but also aids in making them accountable both to internal employees and your external supply chain partners.

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