The idea is that once the different potential risks in the supply chain have been identified, they can be classified according to each dimension. Although companies can assess these risks in different ways, a color scheme similar to the one provided below is often used. The red areas indicate the risks that require the greatest attention in terms of mitigation strategies, either because they will have a very large impact if they were to occur, or because they are very likely to occur; yellow is the lowest level and blue the least worrying categories.
HP is one of the companies that uses a different type of matrix, which maps different types of risks against their impact on specific functions or processes in the supply chain.
As detailed by Christian Verstraete in the most recent issue of CSCMP’s Supply Chain Quarterly. HP uses the matrix below to help it understand the impact of specific types of supply chain disruptions.
Source: Christian Verstaete, HP
This type of risk assessment matrix helps a business focus on those areas of the business’s functional process or supply chain that need to take action to mitigate specific types of risks (for example, business failures). quality, logistics defects, etc.). It also helps companies visualize the interdependencies between functions and processes for specific types of risks.
âAs companies increasingly globalize, their exposure to risk increases,â adds Verstaete. âDespite this fact, many companies are not yet prepared to identify and manage supply chain risks. These companies thus make themselves more vulnerable to business disruptions.
Using these types of tools is a good place to start.
What kinds of tools does your business use to help it understand and mitigate risk? Are matrices like the ones suggested above useful? Are companies focusing enough on risk mitigation? Send us your feedback by clicking the Comments button below.