Question

Why risk management is essential in supply chains? Give an example and provide a long answer

Answer 1

Risk management can be considered to be a viable option as well as an understood necessity of any robust supply chain process of a company. We can say that this becomes a factor for consideration when we understand the basic function performed by any supply chain. We can say that a supply chain allows a company the ability to be able to provide the right material at the right time in the right quantity. What a supply chain, therefore, helps a company accomplish is the ability to cater to the creation of supply to cater to the demand factors present to the company.

Therefore, a supply chain has the necessary requirements of being valuable and sustainable with the aspect of coverage especially over the areas which present possible risks for the entire value chain. We can, therefore, understand the function of a risk management process as being the cornerstone of any supply chain initiative simply because it allows the company the ability to create sustainable processes which are in line with their ability to provide the required service level based on their needs and their system.

With the world becoming extremely interconnected. The variables that present potential risks for a company's supply chain have also increased.

A supply chain, therefore, needs to be resilient to these variables especially when considering the ability to be able to deal with the external environmental changes such as problems with suppliers, natural phenomenon, operational problems etc. Since the nature of these problems cannot be predicted, risk management becomes even more important to deal with the issues.

For example, in the case of a natural disaster such as an earthquake, the company's main supplier cannot deliver their usual order of parts for the assembly process carried out by our business. In this case, a good supply management process would have allowed us the ability to be able to select from other potential suppliers which would have allowed us the ability to continue our core operations without introducing any delay to our networks.

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