How to audit the SCRM? Preparation of an SCRM Audit (Part 1/9)

Long-term efficiency of the SCRM process can only be achieved if comprehensive monitoring of the SCRM implementation process is performed in all phases. To this end, SCRM-related auditing is a suitable method.

In risk management literature, the additional process monitoring for the risk management process is being actively discussed but has not yet been applied to SCRM. Since there has been no attempt to date to develop SCRM auditing, either within the scientific literature or in practice, this topic has been addressed as part of our research.

Extract from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Series-Editors: Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden

How can supply chain risk management be implemented?

When introducing SCRM, organizational, technological, and personnel aspects should be taken into account. At the same time, structural aspects should be aligned with the individual phases of the SCRM process—risk identification, analysis, management, and control (process). Method catalogs were created as a further component

Relevant Aspects  
Personal
  • Awareness of SCRM should be raised among employees
  • Heterogeneous team composition is advantageous (i.e. representatives from purchasing, supply chain management, IT, quality management, etc.)
  • Team members must have sufficient capacity (available working hours)
Organization
  • Integration of SCRM into existing units (e.g., Purchasing, Global Distribution Fulfillment)
  • Support of the project by management
  • Appointment of a project manager who coordinates the SCRM process, collects necessary data/documents, and consolidates the results
  • Regular supplier evaluation—especially for critical suppliers. Clustering according to cash turnover is recommended
  • Complete documentation (e.g. defective rate, special releases, delays, etc.)
  • Regular exchange of information with suppliers such as forecasts, ERP system information, etc.
IT
  • SCRM process support from an IT system
  • Integration into existing IT systems (e.g. ERP) and access to the same data sources (e.g. sales and purchasing) can be advantageous
  • Conducting audits to identify supplier weaknesses

For the SCRM implementation process, the first step is to raise awareness among employees. Internal company events and attendance at specialist conferences or external training events on this topic are, for example, suitable for this purpose.

In addition, a heterogeneous team composition is ideal. If, for example, employees from purchasing, supply chain management, IT, and quality management work together on the SCRM team, a cross-departmental exchange of information is ensured. Additionally, the hierarchical and functional composition of the SCRM team must be considered.

In general, it must be ensured for the implementation process that the team members are motivated and have available capacity (working hours) so that the employees involved do not see the implementation of an SCRM system as an additional workload.

Furthermore, an SCRM team leader should be appointed to coordinate the SCRM process, collect the necessary data or documents, and consolidate the results so that continuous processing of the SCRM is ensured. The associated shift of decision-making authority to the SCRM team is also critical to performance success. Management support for the SCRM is particularly critical here.

From an organizational perspective, a decision must be made at the start of implementation as to whether the SCRM should be integrated into the existing organization or whether a restructuring should be sought. It should be noted here that, particularly in the case of SMEs , integration into an existing department is seen as advantageous. In addition to an increase in the acceptance of SCRM-related measures by other employees, a better exchange of information from this step can be guaranteed.

Furthermore, regular supplier evaluations, especially for critical suppliers, (e.g. clustering by sales) should be integrated into the implementation process, accompanied by complete documentation on aspects such as error rates, special approvals, delays, etc. A continuous exchange of information with suppliers (e.g., via forecasts or ERP system) helps to identify possible failure risks at an early stage.

In terms of technological implementation, the SCRM process should be supported by an easy-to-use IT system; however, isolated solutions should be avoided here. Access to the same data sources by different departments, such as sales and purchasing, also promotes an exchange of information. Associated reporting is also critical for SCRM success. The frequency of reporting, the volume of reports, and the specified group can promote or hinder the SCRM process.

Excerpt from Kersten, W.; Feser, M.; Schröder, M. (2013): Situationsadäquate Implementierung eines Supply Chain Risk Managements, Bundesvereinigung Logistik e.V. (BVL) – Schlussbericht des geförderten Vorhabens 17234N.

What situational corporate factors need to be considered to successfully implement an SCRM?

To successfully implement an SCRM, situational factors should be considered. These will be presented in the following blog posts. The grouping of these situational factors was made in accordance with Ritchie & Brindley (2004) and evince from the respective company’s characteristics: supply chain, environment, etc. The following characteristics were derived from the literature. Here, the focus was on characterizing the companies as clearly as possible. Particular attention was paid to the needs of small and medium sized enterprises, or SMEs.

Situational Factors

For the size of the company, subdivision by cash flow turnover based on company size — small (under 10 million Euros), medium (10 million to 125 million euros), and large (over 125 million euros) — is encouraged by the European Commission 2006 and the AiF 2013.

To determine the vertical integration of manufacturing, the entire production process of a company should be considered. A rough quantitative estimate should be made to distinguish between low and high vertical integration. According to Eberle (2005), low vertical integration (less than 50 per cent own creation of value) in manufacturing is a reason for a systematic risk management in the procurement logistics; whereas, such involvement is less necessary for high integration classifications (50 per cent or more own creation of value). Detailed analyses of value chains for individual products and their manufacturing integrations are meaningful in the actual SCRM process and can be accomplished using special methods. For the manufacturing type, a distinction between order-based, make-to-stock and program-based manufacturing is useful.

In addition to situational factors that characterize the company, factors that characterize the supply chain should also be considered when implementing SCRM. According to Sydow (2010), complexity in supply chains can be determined with the help of various cooperating partners, and high connectivity with information partners. However, Lammers (2012) shows that a number of other factors can be used to measure complexity in supply chains. There are also several other drivers, such as the number of locations or the degree of information asymmetry, which influence the complexity of supply chains (cf. Lammers 2012). Therefore, for a practical self-assessment, a subjective assessment is used, which is based on the empirical results of Kersten et al. (2012b). In practice, “variety” and “connectivity” are most frequently used to determine complexity, and these factors are, therefore, also used as explanations for a subjective assessment. An assessment on supply chain partner intersections by Ziegenbein (2007) indicates that when dealing with fewer than 1,000 direct supply chain partners on one side can be considered normal and controllable for medium-sized companies. Accordingly, above 1,000 direct partners is considered to be a high number of suppliers. Since the coordination effort in SCRM increases due to the internationality of direct supply chain partners, a simplified classification into national and international supply chains is selected in accordance with Trippner (2006). If cooperation with national partners takes place primarily at the first supply chain level, the logistics constitute a national supply chain; otherwise, it is considered an international supply chain.

The third category of situational factors is the environment, which should be taken into account when implementing an SCRM. General conditions play a crucial role, as a short-term reaction to trade barriers is particularly problematic. Therefore, a distinction is made between volatile and stable framework conditions. “Volatile” environmental framework conditions are when the supply chain is exposed to many uncertain changes or trade barriers. On the other hand, stable framework conditions represent the possibility of aligning one’s supply chain with existing conditions. When using established standards for self-assessments, a distinction should be made as to whether such standard approaches for describing, measuring, and evaluating supply chains have already been implemented or not

Excerpt from Kersten, W.; Feser, M.; Schröder, M. (2013): Situationsadäquate Implementierung eines Supply Chain Risk Managements, Bundesvereinigung Logistik e.V. (BVL) – Schlussbericht des geförderten Vorhabens 17234N.

SCRM lead Success Factors

A number of success factors have been identified in the research projects, which, if they are not implemented, can also have an obstructive effect.

Success factorsDescription
Degree of InterdisciplinaryInterdisciplinary coordination to include specific knowledge and distribution of tasks
Data availabilityExploitation of existing internal data and acquisition of external information
Direct contact to the managementSupport of the implementation process by the management and short escalation paths for decision making
UsabilityControllability of the SCRM to be implemented
IT support(Partial) automation of tasks for efficient processing
Clear responsibilities and processesDefined project management and standardized mapping of processes for clear coordination of tasks and alignment of objectives
Employee motivationEarly involvement of affected employees and establishment of a SCRM culture; involvement at an operational level
Availability of resourcesFinancial and human resources
Cooperation with supply chain partnersEarly and intensive cooperation with supply chain partners; exchange of relevant information and coordination of measures

An important success factor is the company’s internal, interdisciplinary cooperation. Coordination between individual departments involved in different points of the value chain is essential for holistic SCRM. In addition, cooperation with supply chain partners offers significant potential for controlling supply chain risks; the fluid exchange of information and the close coordination of implemented measures will play a decisive role here.

Adequate human and financial resources are required to process the individual SCRM phases. The employees involved play a significant role in the success of SCRM and must be appropriately involved and motivated. From the point of view of project management, a designated project manager, who takes responsibility for the entire project and has appropriate authority, is required. A clear definition of the processes is necessary to coordinate all parties involved and to ensure that they are implemented on a permanent basis. Ideally, these are mapped according to the IT systems used. These can make a significant contribution to automation, if corresponding data is available. The overall project must be realistically planned from the beginning and supported by management. At the same time, the realistic manageability of the project must remain always in view.

Excerpt from the final report of the project “Situational Adequate Implementation of a Supply Chain Risk Management.

MBP 5/16 Measures and Best Practices for “SCRM Awareness and Culture“

“The issue should be brought to the attention of decision-makers–not only in the short term, but also in the medium and long term.” (Interview – Director Risk Management, Logistics Service Provider)

A positive approach to SCRM requires management’s openness towards suggestions for managing reported supply chain risks in a manner in which employees can see the value that’s being added. This form of a lived risk management culture is also accompanied by an awareness of supply chain risks among employees.

In the numerous expert interviews and focus groups with company representatives and scientists for the development of the maturation model, the following measures were identified: 

  • Establish a risk-conscious corporate culture which welcomes proactive measures to reduce supply chain risks (e.g. by regularly addressing supply chain risks and their consequences, by procedures or behavioral instructions, or by visual aides like photos, diagrams, or hidden objects.
  • Reinforce a pro-SCRM culture that pursues novel SCRM strategies. To this end, frequently highlight small successes or negative examples.
  • Ensure that sufficient human and financial resources are available to deal with SCRM and that the SCRM strategies are not perceived as additional workloads.
  • An important prerequisite for assuming responsibility for SCRM is above all an appropriate awareness of the risks involved. Ensure a relatively ubiquitous awareness-baseline by having upper management frequently address relevant topics, conducting trainings, distributing manuals and procedural or behavioral instructions, and offering visual aides in the form of photos, diagrams, etc.
  • Promote the regular exchange of SCRM-relevant information between the various departments (e.g. through monthly meetings).
  • Communicate the positive results achieved through the use of SCRM measures or the negative consequences of non-compliance.
  • The achievements of department managers and employees with regard to SCRM should be positively acknowledged, orally and/or in writing, by management.
  • Define and communicate thresholds, which should not be exceeded or undercut, in order to promote a common understanding of risks.
  • Where appropriate, try to integrate (as risk indicators) the risks which have been reported by individual employees over a long-term basis, and give the respective employee feedback to motivate them.
  •  Integrate aspects of SCRM as fixed components in the targets set for managerial teams. 
  • Try to extend the SCRM culture to your suppliers (e.g. regular supplier SCRM auditing).

Extract from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Reihen-Hrsg.: Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden

MBP 4/16 Measures and Best Practices for “Employee skills and training”

“The fact is, a risk manager is not exactly at the top of the popularity scale. For most people, risk management is perceived as an “optional” or “cosmetic” issue.” (Interview – Managing Director, Trading)

Other factors contributing to the success of SCRM include sufficient professional competence of employees in dealing with SCRM as well as supplying the associated training opportunities: employees should be able to correctly analyze and evaluate supply chain risks. 

In the numerous expert interviews and focus groups with company representatives and scientists for the development of the maturation model, the following measures were identified: 

  • Regularly train your employees on situational decision-making and supply chain interruption avoidance (when to report what and to whom).
  • Ensure access to SCRM documents that are used to train SCRM employees.
  • Train (internally or externally) your employees on a regular basis. Training courses should seek to implement new findings within SCRM, for example, elements of Big Data in SCRM or new requirements for SCRM in Industry 4.0.
  • Create an SCRM manual with the most relevant information, including threshold values of specific risk tolerance.
  • Create structured management processes to better handle supply chain-relevant information.

Extract from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Reihen-Hrsg.: Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden

MBP 3/16 Measures and best practices for “Integration into Existing Planning and Management Systems”

“[…] but how am I supposed to explain to a colleague in charge of R&D that he has to give me part of his budget so that I can take action to avoid a problem that doesn’t exist yet?“ (Interview – Operations Manager, medical device manufacturer)

SCRM is most efficiently implemented, if management is regularly involved and interested in the SCRM measures and seeks to integrate them into existing planning and management practices (particularly those which add direct corporate value, such as budget planning, quality management, production planning, etc.). Individual components of SCRM can be used as decision support tools.

In the numerous expert interviews and focus groups with company representatives and scientists for the development of the maturation model, the following measures were identified: 

  • Develop an SCRM strategy: What are your core issues? What do you want to achieve? What supply chain risks can arise? Which projects should you tackle first? What financial, time, and human resources should you allocate to them?
  • Regularly align your business strategy with your SCRM strategy as changes in business strategies can also affect supply chains.
  • When formulating and designing an SCRM strategy, take into account the basic attitude of the company management towards supply chain risks (e.g. risk-averse or risk-taking).
  • Integrate aspects of SCRM into existing planning systems, such as budget planning and other management approaches (e.g. quality management and sustainability), and make sure to avoid duplicating tasks.
  • Take SCRM aspects into account in strategic decision-making.
  • Try to expand the collaborative approach of SCRM (e.g. through detailed supplier selection, joint supplier development, etc.).
  • In addition to SCRM risks, potential, associated opportunities should also be considered (opportunity management).

Extract from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Series-Editor: Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden

MBP 2/16 Measures and Best Practices for “Involving and Persuading the various Management Tiers”

“A decisive factor is the mindset of the executives. They must be open to the subject.” (Interview – Head of Logistics, Food Industry)

The SCRM owners can come from different hierarchical levels. The greater the involvement of higher and top level management in the SCRM, the greater the importance that will be ascribed to the topic within the company. 

In the numerous expert interviews and focus groups with company representatives and scientists for the development of the maturation model, the following measures were identified: 

  • Try to make the SCRM visible in the organizational structure–for example, create employee requirements or integrate the SCRM practices directly and openly into operations.
  • Supply chain risk information should be included in senior management decisions. To do this, ensure a consistent relay of information.
  • Promote risk awareness among management and employees by regularly highlighting positive successes and negative consequences.
  • Proactive supply chain risk measures should be rewarded. Create incentives to proactively take supply chain risk measures.
  • Try to involve management in SCRM as much as possible (e.g. participation in interdepartmental meetings, regular provision of information, distribution of status quo reports, etc).
  • Create binding guidelines or procedural instructions to increase the commitment of handling SCRM and ensure that these are adhered to. Make sure that management is strongly involved in this process.
  • Ensure that SCRM is a regular component of those meetings (planning meetings, strategy meetings, etc.) which involve management; otherwise, ensure management is informed about the respective details discussed therein. Ideally, the entire management team should come to support SCRM. Extensive financial investments should be made to the SCRM framework.
  • Ensure that significant investments are made in the SCRM.

Extract from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Reihen-Hrsg.: Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden

MBP 1/16 “Responsibilities and Extent of Subject Processing

“Transparency should be achieved in a coordinated manner, via a very carefully constructed team with clear responsibilities” (Interview – Risk Manager, Aviation)

In addition to the responsibilities for SCRM, decisions must consider the time constraints of employees (Schröder et al. 2013a, p. 5). The required personnel hours vary from a few days a year to a few hours a week and will include a scope of work beyond that of the acute handling of previous supply chain risks. The larger the company, the more time is usually spent on handling SCRM. However, this is only the case if there is strong management interest in the topic.

In numerous expert interviews and focus group discussions with company representatives and scientists, the following measures -which build on each other- were identified during the development of the maturity model: 

  • Identify the core issues in your company. To what extent are these core issues affected by Supply Chain risks? What is your goal? What do you want to achieve? How can you influence these core concerns?
  • Ensure sufficient human resources to support those responsible for SCRM.
  • Define individual persons responsible for each given SCRM category and make sure to include at least one other employee in addition to the head of the department.
  • When integrating the SCRM organization, take into account that the integration depends on a number of context factors, such as the size of the company, the structure and complexity of the SC, and the dynamics of environmental influences.
  • Find out whether best practice examples for SCRM already exist in your company or whether there are examples from elsewhere in the respective field.
  • Try to not hang the topic of SCRM on the shoulders of just one person at your company.
  • Try to integrate individual components of SCRM into your daily tasks.
  • Create a responsibility matrix that shows which departments perform full or limited tasks.
  • In addition to regular staffing, form an SCRM team consisting of employees from different departments, who then regularly meet to exchange information and play through various relevant scenarios.
  • Define a point person responsible for SCRM, who develops and promotes company-wide SCRM strategies.
  • Try to integrate SCRM into both the organizational and operational structure.

Excerpt from Schröder, M. (2019): Structured improvement of supply chain risk management. In: Supply Chain Management – Contributions to Procurement and Logistics, Reihen-Hrsg.: Essig, M.; Stölzle, W., Kersten, W., Springer Gabler: Wiesbaden

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