Supply Chain Risk Management: The SCRIPt Model

by Praveen Bhukta G., IIM Lucknow

Introduction

When you move or store things, you incur risk. Throughout the supply chain there is substantial risk. There is risk that goods will be stolen, hijacked, damaged, lost, burnt or cannot be retrieved, incorrectly distributed or sold.

What will happen if your warehouse burns down or is destroyed by a lightning strike? How will you be affected if your IT system crashes for three weeks, or a virus plays havoc with your electronic communications for a week? What if your third party transporter or your major supplier goes bankrupt?

Sure, it is possible to insure for some risk components, but what about the consequential damage. How will any of these disasters affect your ability to service your customers? Will you be able to retain customer loyalty and will your business recover?

What is supply chain risk management?

Risk is all about uncertainty, chaos, instability, being out of control, and unusual events. And supply chain risk is something arising out of any of the above. To add to the effect, if a single member of the chain is exposed to risk, the whole chain becomes vulnerable. Thus, supply chain vulnerability can be defined as ‘an exposure to serious disturbance, arising from risks within the supply chain as well as risks external to the supply chain'.

Consequently, supply chain risk management aims at identifying the areas of potential risk and implementing appropriate actions to contain that risk. Therefore it can be defined as: “the identification and management of risks within the supply chain and risks external to it through a coordinated approach amongst supply chain members to reduce supply chain vulnerability as a whole.”

Why do we need supply chain risk management?

We can better appreciate the need for a supply chain risk management model, if we can understand some of the factors that are contributing to its requirement. The following are the factors contributing to supply chain risk.

Why a new Model?

There have been many frameworks formulated and developed on supply chain risk management. But few have dealt with the subject comprehensively. This model suggests a stepwise procedure which deals with identifying risks, prioritizing them and acting upon them to mitigate their effect. Constant feedback and control are built into the model along with continuous review of the supply chain risk strategy.

Framework of the model

Framework of this Supply Chain Risk Management model includes Supply Chain Risk Identification, Prioritization and Mitigation Strategy (SCRIPt Model: See figure below)

Prominent steps include the following

•  Risk Identification

•  Risk Prioritization

•  Risk Mitigation Strategy (RMS)

•  RMS Implementation.

•  Feedback and Control

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Conclusion

This framework allows for supply chain management to be adjusted for risk. Risk-adjusted supply chain management recognizes that risk suffuses every facet of an organization's supply chain—from planning to design to supplier selection to inventory management. It also recognizes that the way in which a company manages this risk is, ultimately, a financial issue. The cost of taking on more risk - sometimes without knowing it or without being able to measure it reliably - can go straight to the bottom line. This framework can help an organization make the transition from managing by instinct and anecdote to managing by hard information based on the identification and prioritization of supply chain risks. By identifying, prioritizing and mitigating the risks within the supply chain to manageable financial metrics, an organization improves its decision-making confidence. Organizations that have the foresight to understand and manage risk within their supply chains will continue to make significant gains in network optimization, operational excellence, and customer satisfaction. Those who persist with the status quo by underestimating the impact of risk could face a decidedly different future, one marked by customers and shareholders dissatisfied with unreliable supply chain performance.

About the Author

Praveen Bhukta G. has done his bachelors in Mechanical Engineering, from Andhra University College of Engineering, Visakhapatnam . He worked for two years with an IT (Information Technology) firm before joining Indian Institute of Management, Lucknow to pursue his MBA program. His research areas include Business Process Re-engineering, Business Modeling and IT Strategy. He spends a lot of time understanding the Universe, Space & Time and the Human Brain. He is an avid fan of “Formula 1” races and he loves playing Shuttle Badminton. (Email: praveenbhuktag@iiml.ac.in )