Importance of Supply Chain Risk Assessment for Procurement Organizations

In a volatile business environment, organizations, both small and large, are exposed to several domestic and international threats which can negatively impact the existing supply chain. Leading factors include natural disasters, dangerous weather conditions, changing government regulations, environmental policies, political instability, and other people-related factors. These can have a lasting impact on the global as well as regional operations of organizations and their existing suppliers and supply chain.

With large organizations across the globe increasingly focusing on enhancing efficiency, supply chains have become more complex and highly vulnerable to risks. Increasing technological advancements (cloud computing, Internet of Things), automation (Industry 4.0), single supplier sourcing as well as off-shoring in emerging countries have boosted efficiency but, at the same time, increased multiple risks globally, such as related to cyber warfare, terrorism, and epidemics.

Due to these reasons, exposure to supply chains to risks has increased manifold; also, it has become very difficult to predict the likelihood and impact of disruption. Failure to supply chain risk assessment, primarily for high spend categories, can impact the top line. Unforeseen interruptions caused by the limited supply of products, including raw materials or parts, can lead to a major loss for the business.

An in-depth supply chain risk assessment as well as organizational ability to respond quickly to risks and assess their impact is critical to success. Many organizations often do not undertake supply chain risk assessment regularly and rely on one-time data. Negligence in the identification of potential risks before outsourcing products and services can prove very costly, leading to disruptions in the supply chain and loss of profit.

It is imperative to have a running Supply Chain Risk Assessment program to hedge against any uncertainty and identify appropriate solutions to manage the risk. An effective Supply Chain Risk Assessment program enables organizations to improve relations with suppliers, have better purchasing terms, manage inventory efficiently, and optimally allocate manufacturing resources.