Supply chain risk management is pivotal for maintaining the continuity and durability of business practices. With expanding trade, companies can face challenges that disrupt supply chain operations. The supply chain risk management process basically covers recognizing, assessing, and minimizing the risks that can harm the flow of goods and services. This active approach assists in navigating through the potential uncertainties, building and maintaining the customer’s trust while sustaining their competitive edge. 

We will discuss the best practices that emphasize the importance of risk management. In addition, we will also explore the essential constituents of SCRM that help mitigate the effects on global trade in detail. 

What is supply chain risk management? 

Supply chain risk management refers to the procedure businesses use for risk identification, evaluation, and minimizing potential risks in the supply chain. The main risks associated with management are economic, political, and ethical. In addition, cybersecurity threats can hinder freight transfer from the port of loading to the unloading port, leading to complexities regarding logistics. These challenges include supplier bankruptcies, natural disasters, and economic complications. Supply chain mapping, Value at Risk (VaR), inventory management adjustments, and scenario planning are the risk management strategies for minimizing the effects of challenges. 

What are the potential supply chain risks? 

Two types of risks affect the supply chain dynamically. These risks lead to developing supply chain risk management strategies discussed in the content. The following are the types of risks in supply chain management: 

1. External risks: The external risks cover outside situations such as: 

• Natural disasters include earthquakes, hurricanes, and floods that disrupt container transportation networks and production facilities. 
• Market fluctuations include economic degradations, changing currency dynamics, and changes in consumer demand, which affect supply chain flexibility. 
• Geopolitical instability involves political tensions, regulatory changes, and trade wars that affect the availability and price of goods. 

2. Operational risks: The risk evaluation highlights all the challenges while performing the supply chain functions. Below mentioned are the operational risks: 

• Labor strikes are workforce disruptions caused by a halt in labor work due to a shortage or legal implications. These strikes ultimately delay shipments. 
• Logistics disturbances include delays in transportation, port congestion, and last-mile delivery challenges. 
• Challenges in quality control include the degraded and inconsistent quality of the product, which leads to recalls, increased prices, and customer disappointments. 

3. Internal risks: The internal risks are associated with internal functioning in the supply chain stages. Indeed, here are the internal risks: 

• Inefficient suppliers: Depending on unreliable and inefficient suppliers can disrupt your performance, leading to supply chain disturbance. 
• Cyber threats: Cyber attacks and data breaches compromise the safety of the supply chain and concerned operations. 
• Production challenges: Manufacturing defects, malfunctioning equipment, and inefficient production needs risk assessment in the supply chain.

Supply chain risk management strategies

A well-planned strategy is needed to mitigate the impact of the supply chain risks, be it social, economic, or political. Let’s discuss some of the effective supply chain risk management strategies: 

1. Supply chain mapping: This consists of creating a map of all the nearby suppliers. Conduct comprehensive research on the suppliers’ identity, services, and ways. You can use supply chain optimization software to create this map and update it regularly when you change suppliers. 
2. Use the PPRR risk management model: Businesses worldwide use the PPRR (Prevention, Preparedness, Response, Recovery) as a supply chain risk management process. PPRR stands for: 

• Prevention explains taking precautionary measures to minimize supply chain risks. 
• Preparedness is the preparation of a detailed plan in case of an emergency. 
• Response covers executing the plan for risk mitigation. 
• Recovery means resuming operations, sorting things, and operating them as soon as possible. 

3. Value at Risk (VaR): A supply chain management association has risk assessment metrics. This metric is called Value at Risks in Supply Chain Operations Reference (SCOR). It evaluates the categories of associated risks, whether political, weather-related, or ethical, and then forecasts probabilities. 
4. Improve supply chain visibility: Enhancing supply chain visibility means having more information about the functions performed. This will help you spot potential earlier. You can also seek the help of credit rating agencies that provide reports on all suppliers, which will help you choose more suitable suppliers for your shipments. Technological investment is always the best form for improving supply chain visibility. IoT sensors, GPS trackers, AI, and machine learning in the supply chain provide real-time data that helps prepare for upcoming risks. 
5. Weighted ranking: Weighted ranking assesses the supplier’s risks by assigning importance to factors such as economic disturbance, credit history, natural disasters, and financial dependence. Under this, you must provide a particular weight to each supplier and a mark from 1 to 5. To calculate the supplier’s total risk, analyze the average weight of the scores that can be transported from one container depot to another. 
6. Execute a comprehensive logistics plan: Like a responsive and emergency plan, you should implement a contingency plan for logistics optimization to align them even in the worst conditions. Lastly, you must create a plan by keeping certain things in mind, like: 

• Mapping the supply chain.
• Conduct a full assessment of suppliers. 
• Expand and diversify your supplier network.
• Conduct a comprehensive supply chain audit of the logistics providers based on disaster plans. 
• Prepare a crisis response team. 
• Establish strong communication with the team. 
• Update yourself with the current events. 

7. Cybersecurity measures: To maintain a strong, robust, and secure supply chain and risk management, you must establish measures to prevent digital breaches or data leaks. The supply chain security system must be analyzed regularly to ensure online security and identify potential vulnerabilities. Train the workforce on the latest protocols or measures. When you share sensitive or confidential data, use secure and password-protected platforms to avoid breaches. You can hire supply chain risk management services to reduce the effect of these data complexities. 
8. Nearshoring and regionalization: Shifting manufacturing and production closer to the markets decreases supply chain security risks and enhances supply chain resilience. You must first identify the key markets important to your business. Then, you must develop good relationships with local suppliers to manage supply chain security risks. 
9. Categorize the data for easy accessibility: Many data in a single software program can entangle information. It would be better to categorize your data in multiple disparate systems. Therefore, this will make data science, predictive analytics, and modeling easier. It can also be used as a supply chain risk solution, which helps keep the information in a single, centralized, and well-organized repository system. 
10. Tracking freight metrics: Tracking the freight and supply chain metrics means analyzing the major performance indicators, like delivery times, carrier perfect, and price metrics, which can help you assess the major issues or vulnerabilities and areas that need improvement for supply chain risk analysis. 

Recent supply chain disruptions

With evolving trade, supply chain operations change with time; some recent disruptions have degraded the quality and quantity of global trade. The following are the recent supply chain disruptions: 

1. COVID-19 Pandemic: The COVID-19 pandemic has changed the overall dynamics of the global supply chain. It has highlighted several potential vulnerabilities, such as dependency on a single container supplier, lack of data categorization, and just-in-time practices. At this time, people faced many issues, such as shipment delays, shortages in supply, and production halts. Now, as it’s been a very long time, we have recovered from the post-effects of the pandemic with the help of supply chain risk solutions. 
2. Natural disasters: The most recent Suez Canal blockage involved a ship wedged across the canal due to high winds. As the main route for trading goods overseas, it has dramatically affected the global supply chains and led to shipment delays. 
3. Geopolitical issues: Trade wars affect the supply chain and lead to increased tariffs and taxes, disrupting the supply chain by increasing costs and complicating the route for many shipments. Moreover, the most recent US-China trade war has affected the global economies and supply chain operations by elevating expenses and rerouting them to longer routes. 

Supply chain risk management strategies are crucial to cope with the evolving global trade infrastructure. For this, you must follow specific steps, including identifying, assessing, monitoring, and implementing strategies for mitigating the potential threats. These strategies will help you simplify your supply chain operations and contribute to the global GDP more efficiently. Analyze the nature of your shipment and then implement the strategies accordingly. 

LOTUS Containers provides containers to simplify logistics and shipping operations in the global supply chain. Our container types offer customizable opportunities to our clients to fulfill their shipping and cargo needs.