Supply chain risk management provides a consistent framework for organizations to become more resilient to supply chain risks. 

Gartner's supply chain risk management process focuses on collaboration to develop and deploy an outside-in framework and mindset to shape disruption to design out and manage risks across diverse ecosystems of partners — digital and physical. It is strengthened by technology used for risk identification, holistic impact analysis and monitoring.

Here are 3 key risk management recommendations:

• Link risk management activities to strategy to focus on impacts to key activities, products, and services

• Establish processes and governance with risk indicators to identify and prioritize risks, decision making on acceptable risk levels, risk appetite, response and escalation

• Track interdependencies, bottlenecks and potential failure points over the product life cycle

Effective supply chain risk management is not a guarantee for mitigation. Effective risk management will help to prevent some specific risk events and types that fall into one of four risk categories:

• Aleatory Risks: Known in type and impact, specifically those that require certain know-how and can be foreseen

• Latent Risks: Known to others in the supply chain as hidden knowledge

• Epistemological Risks: Known as existing risks, but without further knowledge on how they would impact

• Ontological Risks: Unforeseen, with complete lack of insights

• Supply chain risk management commonly emphasizes the process of mitigation reflecting limitations, additional tasks and audits that adversely impact the value, complexity and velocity of sourcing processes and operations.
• Supply chain/procurement leaders prioritize business continuity over agility in the risk appetite statement on which supply chain risk management is grounded by focusing on risk mitigation rather than risk utilization as the incubator of innovations.
• The misconception of risk formalized in a risk appetite statement limits sourcing’s ability to thrive in uncertainty and leverage imbalances to support and advance the business strategy through supply chain risk management. Over time, this approach decreases competitiveness with fading competencies.

Gartner analysts recommend that supply chain/procurement leaders responsible for supply chain risk management:

• Analyze and define the optimum risk utilization applicable to sourcing activities to drive the business strategy forward within the underlying industries, and develop and formalize a sourcing risk appetite statement.
• Build a lean and effective cross-functional governance framework to serve as a risk oversight and advisory function with the key mission to support risk-based decision making.
• Use an integrated risk model to create an optimized risk utilization sourcing strategy with value-add sourcing plans supported by enhancements in people, processes and tools.

Supply chain and procurement leaders are well-positioned to leverage the integrated risk model, establishing an augmented sourcing function delivering results above expectations, lowering the risk exposure and providing cross-benefits in support of the broader business strategy. This will position the enterprise favorably in its markets and industries as a core player with which innovative and disruptive companies would like to engage. Since the burden of asymmetric partnership is reduced through an agile and adaptive sourcing organization, untapped innovations and key external competencies are now able to come into the company across all engagements, enhancing its competitiveness.

For sourcing, this will drive a stronger linkage to stakeholders and boost, through its initiatives, the business strategy success. Sourcing will truly become a business partner and strategy shaper with a clear purpose and a reserved seat for the supply chain/procurement leader in the C-suite, right next to the CEO.