Supply Chain Risk Profiling: Create a risk profile for your supply chain

Supply Chain Risk Profiling - Introduction

Even before the Corona pandemic, supply chains were disrupted by emerging risks and the consequences were often severe. Risks can occur in the form of various types of costs, be it lost productivity, lost sales or inventory build-up, and at different points in the supply chain. Lack of visibility can be cited as a significant reason why disruptions can occur as a result of risk occurrence.

In the 2019 Miebach Study on Supply Chain Risk Management (SCRM), only 40% of respondents reported having a good level of information about risks within their supply chain. Establishing this lack of transparency is one of the critical keys in managing risk, but often requires a corporate effort. Implementing and establishing a supply chain risk management process in the organization, e.g. in the form of SCRM software, requires a great deal of time and investment. Companies therefore shy away from implementation and trust that they will be spared risks. 

Figure 1: The requirement for SCRM is to minimize the impact of risks along the supply chain

It is not necessary to introduce a full SCRM to bring transparency into the logistics network. Even small steps can have a big effect. For example, simply identifying and then monitoring particularly critical products, regions or suppliers. Further positive effects that SCRM can bring to the company, and how it supports the monitoring of global and networked supply chains, can be seen in the adjacent figure.

Today, supply chains are more global and interconnected than ever. Components or finished goods have often traveled the world before reaching the end customer. In the process, supply chains often run through regions where supply chain risks are more likely and more devastating. Knowing these can be invaluable.

Figure 2: Exemplary risk profile for the supply chain

Create a risk profile for your supply chain and get more transparency and decision security!

The SC-Risk Profiling includes four phases: In various workshops, the maturity level of the existing risk management for the supply chain is analyzed with specialist employees, and potential risks are identified and evaluated. The results are compared and finally summarized in a risk profile from which potentials and general measures can be derived.

Creating a risk profile for the fashion industry

In the fashion industry, many supply chains run through Southeast Asia. This region is more at risk in various risk categories than countries in Europe, through which the supply chain also runs. Identifying, assessing and monitoring the risks of this part of the supply chain can therefore already add value. Defined categories such as nature, politics, infrastructure, logistics or IT, allow one to identify corresponding regional risks in Supply Chain Risk Profiling. The list of concrete threats, both general and industry- or company-specific, can quickly get out of hand: earthquakes, tsunamis, floods, power outages, quality problems, unqualified employees, political decisions, or changes in legislation reflect only a brief excerpt. This makes it all the more important to prioritize risks in order to achieve a clear distinction of the hazard potential. This is achieved by evaluating risks according to probability of occurrence and extent of damage, whereby the latter should be differentiated according to cost, time, and quality.

Each risk is evaluated according to how strongly it endangers one of the three objectives. This approach creates transparency in the region that is particularly susceptible and provides insight about the hazardous situation. Based on these results, selective, and promising measures can then be defined, which can be taken without major loss of time in the event of risk occurrence. This means that the occurrence of the risk cannot be avoided, but the impact of the risk on the entire supply chain and the company can be minimized through a considered, rapid, and targeted response.

Expansion of supply chain risk profiling to include maturity profiling

In order to derive further optimization potential in addition to a comprehensive catalog of measures, supply chain risk profiling also includes maturity profiling. This involves comparing the current state and target state of your SCRM. For example, if a company decides to profile its Asia supply chain for the first time and has not yet established any other SCRM activities, the actual state of all risk categories is set to the lowest level ("Innocence").

The target state for natural risks is defined as "Excellence" (highest level) due to the regional focus, while others are ignored (still "Innocence"). At the end of the supply chain risk profiling, the target state is compared with the result of the risk assessment. If there are discrepancies, the target should be adjusted and tracked according to the real threat identified by the profiling.

On the basis of this easy-to-perform qualitative analysis of the risk potential of certain supply chain areas, further investigations can be initiated. Here, a link between SCRM and digitization, especially the topic of AI, can significantly strengthen the effect of SCRM and the full potential can be exploited.

Figure 3: Miebach Risk Profiling creates comprehensive risk transparency and the starting point for effective Supply Chain Risk Management

Please feel free to contact us at any time if you have any questions about supply chain risk management and beyond.

Contact the author:
 Daniel Simon

Daniel Simon

Consultant

Phone +49 89 2444210-36

Email simon@miebach.com

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