We recently produced a white paper focused on response to supply chain risk situations (you can get the white paper here: Essential characteristics of a supply chain risk management strategy). Too often supply chain risk management focuses primarily on risk identification, with discussion on risk mitigation, but very little discussion of risk response.

John Westerveld, who wrote the white paper, corrects the imbalance by identifying the benefits of being able to respond to unanticipated supply chain risk situations. I suggest that nearly all risk situations are “unanticipated”. Without a doubt risk identification and risk mitigation exercises are extremely valuable. One has only to look at flight simulators to understand the value of studying potential risks and strategies for reducing the potential for harm. To understand fully the value of risk response though, imagine if a pilot has to respond to a loss of cabin pressure in a mountainous area at night that is coupled with a total loss of instrumentation. The hydraulics and other flight controls are working satisfactorily, but the pilot has no idea of the direction, inclination, and speed of the plane.

I contend that this is the equivalent situation most supply chain people face on a daily basis:

• night is the equivalent to the lack of visibility
• loss of instrumentation is the equivalent of having no analytics and what-if analysis capabilities to understand and evaluate the consequence of decisions
• the mountainous region is equivalent to the current lean practices that have greatly reduced inventory levels and therefore the flexibility of the supply chain and increased the risks of making an incorrect decision experienced by most supply chain professionals.

The pilot may have practiced how to respond to a loss of cabin pressure in the simulator, but the chances that the situation in the simulator included responding at night in a mountainous area with a total loss of instrumentation is very low. Therefore the pilot needs to use human judgment to evaluate the limited information at his/her disposal. In addition the pilot will likely need to “collaborate” with a flight control center to gain greater “visibility” into the plane’s speed, direction, elevation, and inclination, as well as the best place to land and the route to get there. Otherwise the consequences are likely to be catastrophic.

While almost no situations we have to deal with as supply chain practitioners would result in loss of life, I think the analogy is very consistent with the day-to-day experiences of supply chain practitioners. Risk identification and mitigation are necessary preparatory steps. Risk response is a daily reality. Being able to respond quickly and effectively requires supply chain visibility and collaboration, and a system to define and evaluate alternative response scenarios.

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Tags: Scenario management, Supply chain risk management, Supply chain visibility
Posted in Supply chain risk management
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