Why is Purchasing & Supply Chain Risk Management Important?

Purchasing and supply chain risk management is an essential part of any strategy across all industries or corporate structures because the supply chain is bound to the financial health of the company. These risk management strategies may determine to what degree your business reaches the required production levels in the event of a disruption. Supply chain risk management is no longer seen as a reaction to a problem, but a strategy and plan that is in place for when the problem occurs. Many case studies have shown that supply chain is always accompanied by risk and improper risk management can significantly cripple your business or in extreme cases cause it to shut its doors; that is why risk management is something that cannot be ignored. There are few events in recent times that have disrupted the supply chain worldwide. Consider the Persian Gulf War in 1990-91, the 1995 earthquake in Kobe, Japan, the terrorist attacks on World Trade Center in the year 2001, the great Indian Ocean tsunami of 2004, hurricane Katrina in 2005, and the list goes on. It could be a natural disaster, a war, or a manmade tragedy. While all resulted in loss of life and are tragic in their circumstances, they also all impacted businesses around the world. There are countless other smaller events that made differences in certain regions of the world. The point of this article is not to examine or debate the political or humanitarian aspects of these tragedies, but to open the discussion regarding the unknown risks facing your supply chain and how you can prepare. We all know that natural disaster or accidents can create a domino effect stretching across oceans, continents to business, suppliers, vendors and impacting end users, investors and everyone at every step of the supply chain. Professionals at the top companies recognize this fact that improper risk management strategies can ultimately be responsible for the failure of any business unit. As a responsible business owner, it is up to you to set the right supply chain risk management guidelines. However, creating supply chain risk management strategies is not always easy because you are dealing with the unknown. In order to define the right risk management strategies for your business, you should have skills and proper knowledge on how to reduce risks. Make sure that you are implementing all the practical guidelines that are effective as well as easy to follow. It may also be necessary to do some refined research to gather information about the political, environmental and natural disaster risks in the areas in which you do business. Having a complete picture of the potential risks will help you formulate your plan. Accidents can happen without warning but with the right preparation your supply chain risk can be minimized or eliminated entirely. If you own a small business and you have been considering supply chain risk management strategies, then now is the right time for you. As we close out this calendar year and you are making plans and projections for the next year, make risk management part of the plan. No company, big or small, can expect to survive and compete in today’s market without having risk management strategies in place. The challenge facing you is the unknown. What will be the next tragedy? Will it be a natural disaster or a war? Will be in Europe, the Orients, or right here at home? When it happens will you react or will you have a plan that goes into immediate effect?