How to Integrate Supply Chain Risk Management Into an Organization’s ERM Program

By: Kristina Narvaez
Senior Risk Manager, Smardt Inc. 

Supply chain risk management (SCRM) can be integrated into an Enterprise Risk Management (ERM) program by treating supply chain risks as a critical component of the organization's overall risk landscape, and not just a procurement exercise. This involves systematically identifying and assessing supply chain risks, developing mitigation and contingency plans, monitoring risk factors through multi-tier mapping and technology, fostering a risk-aware culture, and ensuring transparent communication across all organizational levels. By aligning SCRM with the broader ERM framework, organizations can achieve greater resilience, improve strategic decision-making, and enhance overall business continuity. 

The first question to ask is how to integrate SCRM into the ERM Framework? Supply Chain Risk Management activities should align with the organization’s strategic objectives by supporting the broader ERM goals of resilience and informed decision-making. A resilient supply chain is no longer just a defensive measure, but a strategic capability that enables an organization to not only withstand disruptions, but also to thrive during periods of uncertainty.  Resilient supply chains provide a competitive edge by enabling faster response times to disruptions than competitors, ensuring customer needs are met, and capturing market share during turbulent times.

By mapping the supply chain from end-to-end, organizations can identify potential vulnerabilities and emerging threats before they become a crisis. This includes assessing risks like supplier financial instability, geopolitical tensions, and climate-related events. Reducing reliance on a single supplier or geographic region is key in a Supply Chain Risk Management strategy. This diversification, sometimes called “friendshoring” or “nearshoring”, minimizes the impact of a disruption to a single supplier. It is important for organizations to reconsider the “just-in-time” model and strategically stockpile critical components to act as a buffer against a supply chain disruption. By using technology like real-time tracking, AI, and data analytics, organizations can have insights into supplier performance and logistics. This allows for proactive risk identification and faster, data-driven decision-making.

By creating backup plans for supplier disruptions, an organization should diversify their supplier base by identifying and vetting multiple vendors, including in different geographical regions. There needs to be a focus on maintaining a buffer inventory for critical parts to create a strategic safety net. This will help to enhance an organization’s supply chain visibility through technology to better anticipate and respond to issues. The next step is to develop robust communication strategies with suppliers to stay informed and collaborate on contingency plans. Finally, an organization should test and refine their plans through exercises and simulations to ensure their responses are effective during actual disruptions.

Another consideration is to compile a list of potential suppliers for their critical components or materials. Then vet and qualify alternative suppliers, ideally ensuring they are in different geographic regions, or have their own diverse supply chains to mitigate risks like labor shortages or port issues. It is important to review and update supply chain risk assessments for changing circumstances. An organization needs to continuously monitor the supply chain for new risks, periodically reassess know risks, use real-time data and predictive analytics, collaborate across functions and document all changes. This involves a cyclical process of risk identification, analysis, mitigation, and monitoring, often facilitated by technology to manage evolving risks effectively. Organizations can use technology to get real-time alerts and track key performance indicators like on time delivery, which can signal potential disruptions. By leveraging AI and other tools to forecast supplier performance, an organization can detect early signs of trouble and model potential mitigation scenarios.

To review and update supply chain risk assessments for changing circumstances, an organization must continuously monitor the supply chain for new risks, perform regular audits, conduct scenario planning, leverage technology for real-time data and analytics, strengthen supplier relationships, and strategically diversify their supplier base and inventory resilience. It is important for organizations to understand their entire network to identify vulnerabilities, including all suppliers, logistics, and potential disruption points. 

It is critical for the success of an organization ‘s Supply Chain Risk Management program to have a cross-functional risk communication plan that cultivates a culture of psychological safety where employees feel comfortable sharing concerns, regardless of their role. These strategies involve establishing unified goals, creating clear communication channels, and utilizing dedicated technologies to foster transparency and shared understanding of risks across all departments.