Supply Chain Risk Management Strategy

Many of us always look at ways to reduce the costs of risk in our firms or companies, but we never think about our suppliers. Come to think of it, you can make use of all the risk management strategies out on the market and reduce you risk cost to zero, however this could be essentially worthless if you have no supplier to supply you with products to sell and make some sort of profit. Many of us might think that it would be absolutely useless to implement some sort of supply chain risk management strategy, but think about it in this manner: What would happen if not your own office building burns down, but your supplier's office building burns down? Your supplier would not be able to supply you with your good thus you would not be able to sell it and run a profitable business. So supply chain management will ultimately affect you in one way or another. For example when China was hit by that huge earthquake last year, it affected many US companies that received their supplies from that part of China.

I found a video on youtube.com that discusses supply chain risk management. Supply chain risk management has become an increasing factor in many business strategies due to some of the changes involved in supply chains over the last few years. Supply chains are moving towards reducing inventory size which in turn reduces the buffer size that suppliers have in case something goes wrong. Also global sourcing is happening at a rapid pace, where we are no longer buying things from around the corner, but we are buying from all over the place, especially from outside the country. Companies also have a much larger supply base now and many different suppliers all of which require better and more efficient communicating skills. Lastly, a business' customers have greater demands for variability in products, so if you do not have the product that they want, they will go somewhere else to get it, thus you supply chain management is key.

This is where supply chain management kicks in. First and foremost companies need asses the risk associated with their supply chains. Tools to achieve this are described in detail in the video. Secondly the company needs to develop risk mitigation strategies for foreseeable risks, but these take time, effort and are expensive. The most important part of these strategies is a plan of how to respond as quickly as possible if an unlikely event was to occur and to minimize the cost of this event. This involves creating models to simulate what would happen in the case of an unlikely event happening.