Supply Risk — Talking Points for Your Next Management Meeting (Part 1)

There's an outstanding interview in Financier Worldwide with Marsh Risk Consulting's Gary Lynch and Opera Solution's Nigel Issa. Risk has especially been on my mind of late owing to my participation in ISM's risk track at the annual supply management event, but it's clear that not all the best thinking on the topic is coming from this side of the Atlantic. Rather than summarize the interview, I thought I'd take a few key quotations from it and encourage readers who are interested to digest the whole piece in more detail. In this two-part post, I'll provide a bit of commentary at the end of each quotation below:

"Although one might conclude that aggregation risk is limited to geography, a significant lack of diversification in critical information, financial, and supply flows also exists." Spend Matters observation: even though geography has certainly played an important part in the attention executives are now paying to risk thanks to recent natural disasters and political upheaval, there's a huge information void in other areas which limits our ability to proactively manage and mitigate supply chain risk. This is one place where technology, in the form of solutions like SAP's new Supplier InfoNet product that aggregates internal operational information across companies on specific suppliers as well as external news, data and information feeds and content, can play such a critical role in truly risk managing the supply chain, rather reacting to risk within it.

"Less secure global supply routes, with volatile commodity prices and new competition from emerging markets means the assumption that a global extended supply chain is the default strategy looks a much weaker proposition." In the next decade, as we strike the notion of low-cost-country-sourcing from our popular procurement vernacular, it will become increasingly important for companies to challenge the assumption that producing or buying a given widget or sourcing a service in a region that has lower labor costs will result in lower total costs. As we migrate spend back to more local sources and/or source locally in countries we expand operations into, we will begin to take care of one major risk element of supply chains automatically -- distance. By getting closer to the source and having diversified and decentralized supply chains focused on serving local markets, we'll reduce risk, plus build potential redundancy into our global efforts if one region in the distributed (versus hub/spoke) model faces a risk event. In this situation, it's likely that sources of supply in another region, supplying similar parts or even services, could likely pick up the slack.

Jason Busch

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