What is Supply Chain Risk Management?
Supply chain risk management (SCRM) involves identifying, assessing, and mitigating risks that could disrupt the supply chain, particularly those associated with the transportation of goods by sea. It focuses on understanding and managing factors such as geopolitical tensions, natural disasters, port congestion, and compliance with international regulations that can affect shipping routes, timelines, and costs.
Effective supply chain risk management in the maritime sector ensures the reliability and efficiency of logistics, as it provides safeguards against delays, increased costs, and potential losses due to global supply chain issues.
The Importance of Supply Chain Risk Management
Maritime supply chains are built upon a number of moving parts. Regardless of how well-planned the supply chain is, unexpected events on the sea and in ports on the other side of the world can cause delays and introduce unexpected costs. Without effective supply chain velocity and risk management planning, these disruptions can significantly impact business.
Supply chain risk management isn’t about eliminating all risk. It involves identifying potential risks and designing plans to quickly mitigate those risks to minimize their impact on operations.
What are the 4 Types of Risk in Supply Chain Management?
There are a number of risks to the supply chain, but they fall within four categories:
- Operational risks come from the day-to-day operations of shipping companies and ports. They can include delays caused by ship accidents, port congestion, bad weather, or labor strikes.
- Environmental risks such as storms, hurricanes, and typhoons can lead to shipping delays, damage to cargo, and safety concerns.
- Political risks include changes to regulations on imports or exports that can prevent goods from being shipped, sanctions on countries, companies, or individuals, and wars that impact production or transit.
- Supplier risk is when the supplier is the cause of the delays due to poor communication, inaccurate shipments, non-responsiveness, or suddenly going out of business.
Organizations can mitigate these risks with the right technology (see “Supply Chain Risk Management with Maritime AI™” below), developing a supply chain risk management plan, diversifying their shipping routes, and using technology to track their ships and cargo. They can also work with governments and port authorities to improve security and reduce congestion.
Creating a Supply Chain Risk Management Framework
Preparation is key when it comes to lowering the risk of disruptions in your supply chain. It requires coordination with all relevant stakeholders, including the vessel operator; and monitoring port congestion, plus following international news and the latest sanctions compliance requirements. Only by understanding the complete ecosystem of the supply chain can you be prepared for any contingency.
These four steps are the first organizations should take in developing their supply chain risk management plan:
- Identify all potential threats in the supply chain. These can include weather delays, container shortages, vessel rerouting, transshipments, and others.
- Assign a grade or category to each potential threat based on the likelihood of it occurring, and its importance in the supply chain. For example, the risk of a hurricane threatening to reroute your shipment might be high during certain seasons and much lower during other months.
- Assess the impact on the supply chain for each of these threats. For example, if your shipment has to be rerouted, what is the likely route that it would take, or if there is a blank sailing, what other vessels would you use to transport the container?
- Create an alternate plan in case these risks come to pass. This will allow you to be proactive instead of reactive, and ideally mitigate any delays to your supply chain.
Recent Supply Chain Risk Management Examples
Adjusting to Sanctions on Russia
In response to sanctions on Russia, companies had to create a risk management plan that included the diversification of shipping routes. This involved a proactive exploration of alternative routes and ports to mitigate the impact on specific shipping channels. The process included a thorough analysis of the geopolitical landscape to identify viable and compliant alternatives that would sustain supply chain efficiency.
At the same time, maritime companies prioritized enhanced due diligence on suppliers and business partners in the wake of sanctions. This comprehensive scrutiny is aimed at ensuring strict sanctions compliance with international regulations, and minimizing the risk of unintentionally engaging with entities that could result in legal and financial repercussions.
Organizations are also keeping a close eye on the Houthi rebel attacks on the Red Sea area and how that will affect shipping routes.
Supply Chain Risk Management with Maritime AI™
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