There’s a good post over at Sourcing Innovation entitled “Six ways companies mismanage (supply chain) risk“.  I posted a comment there that I’ve posted below as well.

### My Comment ###

Thanks to the doctor for an excellent post. I like the way that the doctor has taken general risk management mistakes and applies them to the supply chain. One mistake that really leaps out is the last one, not managing in real time. One of the key elements of any supply chain risk management process must be continuously reviewing and updating the factors identifying the likelihood of an event and the impact a given event will have on your business. Both of these will change (perhaps significantly) over time.

I’d also like to identify another mistake companies make. Not putting the tools and processes in place to respond quickly to unanticipated events. Several of the mistakes identified in the article result in supply chain risks being missed. We always want to identify and mitigate as many supply chain risks as possible, but often this is not possible. Sometimes things happen that we just didn’t consider. Sometimes we identified the risk, but deemed it so unlikely that we didn’t create a mitigation strategy. This means that events are going to happen for which we don’t have a mitigation strategy. For companies in this position, quickly identifying the impact of the event then creating and evaluating response alternatives is critical. How does one do this? ERP systems are not the answer as they are too cumbersome and take too long to identify impact and evaluate resolutions. You need a tool that enables the following;

• Provides early warning through alerts that an event may be imminent (such as poor on-time delivery metrics)
• Allows you to simulate the event (a supplier failure for example)
• Identify the impact of that event (that supplier provides key components to end items that contribute to 70% of our annual revenue)
• Simulate then evaluate several resolution alternatives (develop new supplier, source elsewhere, reconfigure the product, etc).

For more information on Response Management I’ve got a blog post dedicated to the subject: It’s not about supply chain visibility, it’s about Response Management.

Improving your responsiveness also assists your ability to implement then fine-tune your supply chain risk mitigation strategies when they don’t work out quite as planned.

Great article doc…keep them coming.

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Tags: Supply chain risk management
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