Why is supply chain risk management important?

Risk management stimulates many supply chain best practices. For example, risk management is a key factor in eliminating waste. The unnecessary use of resources or assets creates unnecessary risk burden because each deployed asset, fully utilized or not, requires its own risk protection overhead (such as insurance). This type of waste may additionally increase complexity and the inherent risk of unintended consequences. Risk management generally improves supply chain partner relationships as information sharing improves.

Trust also increases as the practice of risk management demonstrates commitment and capability the supply chain can count on. The reality of soft risk—risk that is difficult to measure— often goes unaddressed without risk management. Constant awareness and vigilance regarding decisions, processes, practices and goals that may unintentionally increase or decrease risk in the supply chain is a difficult, non-intuitive task, but is well handled by risk management roles. Every business faces the strategic balancing of risk and reward. Over the course of history, earning a greater reward generally has required enduring a greater risk. seeks the greatest rewards from its people, assets, capabilities and resources. unfavorable deviation from an expected outcome. companies lose millions because of supply disruption, cost volatility, non-compliance fines Risk management ensures that risk exposure is optimally minimized while the organization seeks the greatest rewards from its people, assets, capabilities and resources.

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