Learn the supply chain risk management maturity model stages from supplier risk management to antifragility.
The way that businesses talk about (and manage) supply chains is changing rapidly.
Following the wake-up call that was the pandemic, companies started to better reprioritize supply chain management functions—pushing the topic of supply chain risk mitigation into the global spotlight. During this time, companies began ensuring resiliency was part of their business strategies to protect against such global supply chain disruptions. After much trial and error, businesses are now revisiting their approach and looking to define the benefits realized from supply chain risk and resiliency management, along with the technologies, processes, and skills needed.
In this journey to better understand how we manage supply chains, terms like “supplier risk management,” “supply chain risk management,” and “supply chain resilience” are commonalities during discussions around supply chain. But what are the nuances of each? And how can companies better understand the relation of each to know where they fall on the supply chain maturity curve?
In this blog, we will look at each supply chain risk management maturity model stage and discuss why companies need to use a combination of both Supplier Risk Management, Supply Chain Risk Management, and Supply Chain Resiliency to advance on the supply chain risk management maturity model.
Supplier Risk Management
What is Supplier Risk Management (SRM)?
Supplier Risk Management solutions enable procurement teams to manage risk events that impact their supply chain and initiate risk response plans. It’s worth highlighting these main differences between SRM and SCRM: 1) SRM is managed by procurement, and 2) relies on disruptions and events to operate. Because it relies on events, a key component of SRM is knowing which events are relevant to the business and which events will create a disruption. Capabilities of SRM include event monitoring and the ability to act upon a range of potential risk factors, such as sub-tier mapping, financial, capacity, compliance, sustainability, ESG, cyber risk, and performance.
Benefits of Supplier Risk Management
- Alerted to relevant events and disruptions
- Reduce time to mitigate disruptions
- Minimize the impact to operations
- Collaborate with suppliers
Example of Supplier Risk Management
Imagine a company called TechCo relies on a company called SemiSupply for a specific type of semiconductor. Using event monitoring, TechCo realizes that SemiSupply has been impacted by a major earthquake. Now, TechCo needs to implement supplier risk management strategies such as alternate sourcing to address potential risks associated with SemiSupply. Following the earthquake, TechCo collaborates with SemiSupply to mitigate risk and avoid significant impact on production.
Supply Chain Risk Management
What is Supply Chain Risk Management (SCRM)?
Unlike SRM, supply chain risk management (SCRM) is not an individual function but rather a consistent framework—outside of an event—that helps a company holistically manage risk across sourcing strategies, R&D, inventory optimization, nearshoring, production and other supply chain functions critical to a business. This framework is designed to shift reactive supply chain functions into predictive, proactive competitive advantages. It then manages identified risks across a diverse ecosystem of partners, both digital and physical.
Benefits of Supply Chain Risk Management
- Awareness of all risk for suppliers
- Awareness of risk to part, site, and product
- Lower cost (freight expedites, inventory, raw material)
- Mitigates impact to operations
Example of Supply Chain Risk Management
TechCo is working on a SCRM strategy to strengthen its global supply chains. TechCo notices that earthquakes in APAC often cause disruptions to production, so the company decides to follow its framework to identify and mitigate supply chain risks.
The company starts by conducting risk assessments of suppliers in the earthquake-prone areas. Next, they identify which suppliers pose the highest risk. They implement a multi-sourcing strategy for high-risk components to reduce dependency on high-risk suppliers. They even begin discussing nearshoring some manufacturing in the future. To prepare for future earthquakes, the supply chain team increases safety stock levels in areas outside of high-risk areas and collaborates with suppliers to make sure they have earthquake preparedness plans in place. This is just a snapshot of the many layers of an actual SCRM strategy.
Supply Chain Resiliency
What is Supply Chain Resiliency?
Companies with supply chain resiliency can withstand and respond to all disruptions while continuing to supply products to their customers, protecting their balance sheets and brand reputation. Unlike Supplier Risk Management, which responds to incoming disruptions, resilient supply chains proactively plan to identify risks and opportunities to mitigate risks.
Supply chain resiliency is a cross-organizational effort managed by supply chain, SCRM, procurement, and operations. By making the supply chain a company-wide priority, companies can maintain continuity of supply to customers, protect brand reputation, protect the balance sheet, and begin to embed supply chain resilience into operations and R&D.
Benefits of Supply Chain Resiliency
- Maintain continuity of supply to customers
- Brand reputation
- Protect balance sheet
- Begin to embed supply chain resiliency into operations and R&D
Example of Supply Chain Resiliency
TechCo has started implementing both SCRM and SRM. The company now sources components from multiple countries, maintains several distribution centers worldwide, and uses advanced predictive analytics to optimize inventory levels and supply chain flows.
TechCo now proactively plans for disruptions and looks for opportunities to mitigate future risks. For example, while competitors are still scrambling to react during the aftermath of a hurricane, TechCo already has planned for this scenario with backup inventory and suppliers in different locations. TechCo continues to sell products as usual, while major competitors struggle to keep inventory flowing.
An Antifragile State of Supply Chain Resiliency
What is an Antifragile Supply Chain?
Achieving a state of antifragility requires a combination of Supplier Risk Management, SCRM, and Resiliency; it is the final supply chain risk management maturity model stage. “Antifragile” is a term coined by mathematical statistician and risk analyst Nassim Nicholas Taleb that describes systems that not only withstand shocks, volatility, or stressors but thrive in uncertainty. Unlike a company that is merely resilient (which returns to its original state after stress), antifragile organizations gain strength (and competitive advantage) when exposed to volatility, randomness, or disorder. It is different from supply chain resiliency because companies 1) thrive in disruption and 2) gain a competitive advantage and grow from disruptions.
Benefits of an Antifragile Supply Chain
- Thrive during disruptions
- Gain competitive advantage
Example of an Antifragile Supply Chain
Let’s see what happens when major players in the high-tech industry are hit by a cyber attack. First, TechCo’s cybersecurity team swiftly isolates the breach ahead of its competitors. Then, the company clearly communicates with stakeholders and suppliers about the attack. While the logistic network has been affected, the company has a backup plan in place with alternate routes. TechCo uses this opportunity to strengthen cybersecurity protocol and develop software that searches for alternate transportation routes. The company capitalizes on these improvements, adding them to its differentiators and attracting new customers. These innovations eventually lead to long-term cost savings and operational efficiencies, while other competitors in the market continue to struggle with cyber attacks.
Where should your organization start on the supply chain risk management maturity model stages?
Different companies may start at different places on the supply chain risk management maturity model. Some companies may have a better Supplier Risk Management solution in place, while others may have a more developed Supply Chain Risk Management solution. However, neither SRM nor SCRM is a destination. The dynamics in today’s complex global environments require the mindset of a journey.
In this on demand webinar, we discuss how to mature your program by embracing a holistic supply chain strategy—combining SRM and SCRM. Hear insights from Resilinc’s CEO Bindiya Vakil and CPMO LeAnne Hester as they discuss strategies and actions that you can implement at each of the supply chain maturity stages for competitive differentiation. Watch now to learn where your company falls on the SCRM maturity model.