Another good article at IndustryWeek talking about supply chain risk management best practices. I posted a comment on the site and have included it here as well.
** My comment **
Good article. It’s important to continually elevate awareness to supply chain risk management given the increasing volatility that most companies face today. There are no signs of this letting up.
One statement really caught my attention. The article states “The ultimate goal of an effective and comprehensive supply chain risk management strategy is to embed risk awareness into all the core elements of the organization, from the C-suite through supervisors and department heads across the various supply chain functions.”
This is really important. There is no chance that you could develop a supply chain risk management strategy that covers every contingency. You have to build a culture that focuses on identify and proactively manage risks as they materialize.
To do this you need to make sure that your staff are both educated and armed with the proper tools. Increasingly, your staff are having to deal with a growing number of risks that pop up daily – risks related to demand volatility, supply disruptions, product changes, etc. Some of these are small, some will be large, but collectively they risk undermining your ability to achieve your objectives.
Tools to arm your staff with the ability for risk tradeoff and response are necessary. These tools must deliver supply chain visibility so everyone has a common view of facts upon which to act. These tools also must support rapid and collaborative scenario creation and analysis to quickly understand the impact of the change and the available action alternatives that exist. These tools must also be able to score each potential action alternative on it’s potential impact to your business objectives.
The reality is that change is a constant today and on the increase. A solid supply chain risk management strategy following some of the guidelines in the article, supported by a well armed supply chain staff are keys to turning these risks into opportunity in today’s environment.
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I’d like to add the notion of aligning risk management strategies to whether the risk is predictable or unpredictable. Predictable (or semi-predictable) events such as strikes or large international events require a Risk Mitigation strategy and predictable events such as earthquakes or a supplier going out of business require a Risk Response strategy.
A Risk Mitigation strategy is about proactively assessing the impact if the event happens and then putting a plan in place to deal with impact should the event take place. For example, as labor negotiations at your key supplier take place, you could assess the impact on your demand and determine where you have excess capacity or additional inventory to meet the demand.
A Risk Reponse strategy is about reacting instantly to determine the impact on meeting your demand comittments. For example a key supplier suddenly goes out of business, you need to which PO’s are affected to limit your financial exposure.
Risk management needs to be thought in terms of Risk Mitigation and Risk Response.