Supply Risk and the Biggest Bet in the History of Las Vegas: That Nothing is Going to Happen

I have a revolutionary, 100% proven weight-loss formula. Barring medical complications, this formula will work, guaranteed, no matter what. Ready? Here it is: eat less and exercise more. This anticlimactic news that everybody already knows can be seen as an allegory for procurement and how many of us currently manage risk -- formulas for dealing with it are out there (and well-known, to boot). But not everybody is able to actually put them into practice. This is not a pedantic dive into what you should be doing. Far from it, in fact. You already know that. This is an existential quandary into why procurement organizations aren't able to pull the trigger to maintain healthy company lifestyles through proper risk planning and forward-thinking insight.

I had a fantastic conversation with Dr. Jeff Karrenbauer of Insight, Inc. last Friday about just this topic (amongst a lot of other ones). We began by talking about the explosion of supply chain relevance after the Japan disaster: the industry has taken over recent headlines. "Ah, yes," Jeff told me. "But as I tell my students, we're on the front page of the WSJ all the time. It's just not necessarily called the supply chain. But we're always there." And it's rarely covering good news. How can we switch those headlines to a positive light, rather than coverage of an industry that's, well, scrambling?

"Aberdeen did a study a couple years ago that revealed that only 13% of respondents had a supply chain risk plan in place," Jeff said. (This is the part we know.) He went on to lay forth the main elements of a proper plan: 1) Audit your whole supply chain; 2) Identify the areas of the most vulnerability; 3) Decide how to mitigate risk. He even walked me through his "ideal risk planning spreadsheet," which included five columns:

  • Column 1: Raw materials needed
  • Column 2: Volume of each raw material needed (Most companies stop here!)
  • Column 3: Total sales volume of all of the products sold that have a given raw material in it
  • Column 4: Profitability of all products that contain this material
  • Column 5: The total number of suppliers out there for said raw materials

Without proper planning, companies face possible negligence charges, etc., etc. After all, calling your high-level team into the conference room on a Saturday morning to say "what do we do now?" isn't a "strategic plan." Nor is "leaning" your supply chain. Take this quote from Jeff to heart: "We have worshipped at the alter of lean so much that we've forgotten about Plan B."

We get that there are a million other things to keep a supply chain executive head-spinningly busy. We live in a world where structured activity drives out unstructured activity, and many people simply don't know where to begin in making a solid framework out of an always nebulous and fluid subject -- not to mention making it an inherent part of company culture. But I do know one thing from my recent learnings from talking with supply chain risk pros like Jeff, Jason, Jim Lawton and others -- supply risk will only become a priority when executives say so. And awareness needs always needs trickle down from the top (CEO and board-level support is a necessity). Yes, it's Voodoo Economics applied to supply chain, if you will.

So why do so many companies still scramble, knowing at least a good portion of what to do, but not doing it? If someone could answer this question, I'm sure shareholders and customers alike would be rejoicing.

- Sheena Moore

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