I came across an interesting report from Aberdeen Group on supply chain risk.   What do you think the top cause of supply chain disruption events was from mid 2007 to mid 2008?  If you guessed “Supplier Capacity not meeting demand”, you would be correct.  Now, what do you think the top cause of supply chain disruption was from mid 2008 to mid 2009?  “Reduction in customer demand” according to Aberdeen.  Makes sense when you think about the economic upheavals over the past 12 months, but it’s still interesting to see how the risk factors have changed.   An additional factor showed up in the report as well “Key supplier’s financial standing deteriorated” was identified by one in five companies as a supply chain disruption event.

The Aberdeen report goes on to provide some good recommendations around formalizing the supply chain risk management process If you are interested I recommend you follow the link to the Aberdeen report and read them in their proper context.  To me, the key point from the report is the importance of reviewing your supply chain risk management assessment and mitigation strategies on a regular basis.  When you are in a period of high demand / growth, your focus is typically on managing supply shortfalls.  You want to make sure that supply disruptions won’t impact your ability to deliver your product.  When you are in a period of recession, the focus switches to mitigating the impact of customers cancelling orders, overstated forecasts and excess inventory.  If your risk management assessment and strategy was done in a growth period, you could be blindsided by supply chain disruption events when the economy retracts.   Likewise, If you  have recently reviewed and revised your supply chain strategy (in a recessionary mode), be prepared to do it again as the economy starts to pick up steam again.

There is a correlation between the supply / demand factors that influence supply chain risk and the factors that influence Sales and Operations decisions.   This is why many companies benefit from adding a high level supply chain risk management review to their sales and operations process.  I’d encourage you to do this as well.  Add an agenda item to the sales and operations meeting to review the assumptions and focus of your risk management strategy given the current demand / supply situation.  If something has changed, trigger a reassessment of your supply chain risk factors.  It may result in some extra work, but better that then being blind-sided by supply chain disruptions.

How do you reflect the changing supply / demand environment in your supply chain risk assessment?   Leave a comment and share your knowledge.

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Tags: Supply chain risk management
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