Wiping the Volcanic Supply Chain Risk Ash off AT Kearney's Supply Risk Research (Part 2)

In the first post in this series looking at AT Kearney's recent supply chain risk research, I shared some of the highlights regarding the top risk factors companies were examining. When it comes to the strategies companies are putting in place to mitigate risks, there are, in ATK's words, "no favorites." 33% of companies surveyed reported, in fact, "no change" to their supply chain strategies over the past year when it comes to targeting supply risk. Highest on the list were companies that have "relocated production to lower costs countries" (22%). This was followed by organizations having "paid a premium for or invested in better quality" (21%), those companies that have decreased numbers of production locations (20%) and orgs that have given supply chain managers more global responsibilities (18%). Further down the list are companies that have increased their number of production locations (15%), relocated production locations closer to markets (14%) or paid a premium for or invested in better visibility (13%). Last on the list, surprisingly, is organizations that have paid a premium for or invested to assure supply of key raw materials.

What do these findings suggest besides the fact that companies aren't aligned in the steps they're taking to target supply risk (and are only selectively pursuing supply chain strategies)? For one, I think we need to take a step back and look at the sample and exactly who participated in the survey. If it was the typical AT Kearney client, I'd wager that there are few early adopters/innovators from a supply chain standpoint (e.g., Apple, Cisco, Caterpillar, UTC, etc.). Maybe I'm wrong -- but it's my general impression today that those who tend to rely on operations consultants the most are those who aren't at the top of the industry game. This could impact the results of the research because there are many companies I've interviewed of late that in my opinion would have skewed the research to higher percentages had they been part of the sample.

Aside from controlling for company sophistication, I think the results paint a bleak picture around contingency planning and readiness to tackle supply chain risk. Just as BP -- and other oil and gas companies, for that matter -- were not prepared to fight a fire and spill in a deep water rig, I think many companies are playing with supply risk fire by under-preparing and investing for the current environment. For this reason, maybe a bit of consulting supply risk sense as proffered by AT Kearney and others as part of engagements would be a wise investment indeed, if organizations are able to follow-up on recommendations with the types of moves necessary to make a difference in reducing supply risk.

I agree with AT Kearney's Laudicina that "Calibrating your business to respond instantly to changing consumer tastes, rapidly delivering products to fill immediate needs, simultaneously serving the market better while reducing inventory carrying costs, is an extremely compelling business case," and that "such a model has placed tremendous stress on the supply chain and left companies with greater exposure to a range of unforeseen, disruptive risks." Yet I'm not sure if the majority or organizations are paying any more than lip service to how the current environment is driving up supply risk.

- Jason Busch

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