There is a common question “What is risk management?” crops up often among businesses with a vast supply chain network. The answer to this question is risk management in an organization involves identifying, analyzing, and responding to risk elements of its business.
Effective risk management attempts to control the potential risks and future outcomes as much as possible through a proactive rather than a reactive approach. Simply put, well-planned and implemented risk management can potentially reduce risks from occurring as well as mitigate their impact.
Typically, the design of risk management does more than just pointing out prevalent risks. A robust risk management structure should be able to analyze the uncertainties and predict their influences on a business. Subsequently, the outcome depends on the choice between accepting risks or rejecting them. Accepting or rejecting risks by a business are based on the already defined tolerance levels.
One of the effective ways of mitigating risks for a business is embracing the Demand Driven strategy. For example, in a Demand Driven supply chain, the focus is on developing, evolving and adapting supply chains in response to shifts in customer demand and market strategies.
A Demand Driven supply chain is a crucial part of a highly adaptive enterprise and can be adopted by almost every type of business.
A demand driven supply chain is distinguished by its end-to-end alignment of its resources to market demand, full transparency of relevant information across the value chain and its optimization for lower total system cost and maximised Return on Capital Employed (ROCE).
According to the Demand Driven Institute, the leading authority on Demand Driven methodology, adopting a Demand Driven Operating Model will eliminate the fragility of a company’s supply chain and strengthen its ability to bounce back when faced with major setbacks. This is confirmed by several reports from companies that have adopted this strategy.
Composite risk management is an integral part of the decision-making process of an organization. The US army developed this concept to identify, analyze, and address various hazards. They also used it to control the risk factors both during missions and for daily activities.
The composite risk management process comprises five steps that enable organizations to adopt a better approach to situations and find the best solutions to various risks.
While discussing risk management at an organizational level, the question “What is enterprise risk management?” inevitably comes up. Enterprise risk management or ERM is a business strategy that helps an enterprise to identify, evaluate, and prepare for any risks and hazards that may disrupt its operations and objectives.
In this modern era, complex organizational supply chains face disruptions, starting from trade disputes, natural disasters to political turmoil. For example, the COVID-19 pandemic has severely disrupted the supply chain of nearly all types of businesses across the world.
Even in a comparatively benign year, like 2019, global losses due to earthquakes, floods, and fires reached $150 billion.
When supply chain disruptions occur, many companies still respond with a more reactive approach. Organizations that diversify their operations and roll out multi-sourcing strategies whenever possible can effectively deal with the risk factors in the supply chain. Increasing supply-chain resilience is a leading theme for many globally operating companies with complex operations.
If an organization can set up an enterprise-wide, well-designed, and disciplined risk management process, it can help mitigate all types of risks, including finance and supply chain. A comprehensive risk management strategy includes planning, organizing, budgeting, and cost control. In addition, adopting a Demand Driven operating model should be considered as a key element of getting a more resilient supply chain. This way, a business will be future-ready and is not likely to experience many surprises because of the ongoing focus on proactive risk management.
To understand the step-by-step risk management process, along with composite and enterprise management, join our upcoming webinar.