Foundations and Concepts

Summary

Foundations and Concepts

There are different stakeholders for a risk management.

The sponsor of the effort is a primary stakeholder and is usually the CPO. Other primary stakeholders are the managers within the supply management group and the individual buyers.

They are responsible for turning the results of a risk assessment into mitigation actions.

Then the secondary stakeholders of a risk management effort are the internal and external customers of the supply management group.

Supply chains consist of tiers. We have to assess the different levels in a risk assessment.

The first-tier suppliers are the main contracting entity. They have a legal responsibility to ensure the performance of their suppliers and their suppliers' suppliers. When assessing the risks, their relationship with the second and third level suppliers should also be examined.

The subcontractor level must be assessed through the relationship with the primary supplier. The interactions they have with the main supplier is a good indication to determine the level of risk of a supply chain.

Estimating the probability of a supply chain disruption depends on the environment built by the suppliers and customers within a trading network. First, we have to define the “network” under analysis, then we should examine the general history of disruption potential of this environment by gathering different data.

Risk management is described as the processes of identifying and quantifying the risk, assigning responsibility for management of the risk, and risk mitigation actions.

Assessing risk demand a huge resources and cost, effectively targeting these efforts is important. Assessing the high- impact risks first is an obvious priority.

A risk assessment depends the availability and quality of the supplier data.

A risk assessment identifies and quantifies the risk of a supply disruption using a framework that describes the attributes of suppliers, their relationships, and their interactions with the company performing the assessment.

Risk mitigation actions are identified by reviewing the risk profile of the entity, and plannifing actions to take that will minimize the risk profile.

The monitoring of risk consists in the efficient use of resources, both the company’s and suppliers.

Risk and Compliance Types

There are different types of risks:

Financial risk is determined by identifying the potential events that are possible, then estimating the probability of these events occurring within the specific industry, and finally estimating the impact.

Operational risk is described as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events.

There is also the brand or reputation which develops during periods of time interacting with the market. Degradation can occur in the same way.

Legal risk which is the risk from uncertainty due to legal actions, or interpretation of contracts, laws, or regulations. Legal risk can cause issues as contract formation or the capacity to enter into a transaction.                                       Legal risk exists in employment issues but also in the field of intellectual property where it can take several forms: patents, trademarks, and copyrights.

Environmental losses can be caused by environmental events or liability losses from environmental impacts based on the actions of the company. Environmental liability losses can be the result of torts, contractual obligations, or violations of statutes.

Technical risks exist under two forms the risk that technology will not work as planned and the risk that a new technology will emerge that makes the existing technology obsolete.

A risk assessment system in use

Companies progressively embrace global sourcing and supply chain management practices, they discover both opportunities and challenges. On the one hand, global sourcing reduces purchase prices and on the other hand it increases the level of risk in the supply chain.

Many companies have experienced supply disruptions and these supply issues have negatively impacted customer relationships, profits and the time-to-market cycles of their businesses, sales and overall brand perception.

A consulting firm has created a framework and process to better understand the factors that create supply disruptions and mitigate risk more proactively.

This process consists of a set of disruption predictors. The process and framework have been used by risk management teams and product managers to help identify, predict, and manage risks in a timely manner, or to be alerted to possible risk factors that require their attention.

The author explains the assessment process activities, steps, and methods through different figures:

-The risk wheel for the analytical or risk event mode. This view takes into account the indicator scores by applying them to potential risk events that would result in a supply chain disruption.

-The Multi-Use Matrix Chart Report is used to show the risk category scores for all of the suppliers in a commodity group.

-The Bar Chart Report shown is used to show the ranking of each supplier's risk scores within a commodity group

Risk Reduction Mechanisms for All Major Risk Nodes

The risk assessment model measures the risk-associated characteristics of a company’s supply chain based upon several dimensions (Supply chain disruption, Performance, Human resources, environmental risk, relationship and financial health.)

The author offers an assessment across multiple data sources for a global view of supply risk. Data on these categories are collected from multiple sources from internal company information sources and external information sources.

The data are then organized into six risk categories, representing the different sources of potential risk in the supply chain. This provides a diagnostic view of the supply network and helps identify the attributes that motivate risk assessment and targeting of mitigation actions. Data can be organized by risk event. These are the events that can occur and disrupt the supply chain. This vision allows an analytical view of the supply network.

The data is then organized by risk category. This makes it possible to target mitigation actions on specific sources of risk at a supplier. Risk measures, or indices, are calculated according to two routes: diagnostic and analytical.

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