Supply Risk — Talking Points for Your Next Management Meeting (Part 2)

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Today, we continue exploring commentary and add some additional analysis from an interview with Marsh Risk Consulting's Gary Lynch and Opera Solution's Nigel Issa in Financier Worldwide. We'll begin by considering the following statement: "Many consider events like the Christchurch earthquake, the Iceland volcano and Japan's disaster as highly improbable events -- so-called 'black swans.' The reality is that these should not be seen as highly unexpected or low probability events for the purposes of managing resiliency." At recent procurement events covering supply risk, the concept of a supply risk "black swan" has been alive and well. For those not familiar with the topic, it's named after the discovery of, well, the black swan, which no one ever thought could exist. Hence the name black swan is labeled as such because it's a discovery, action or event that was previously unforeseen and likely could not have been predicted.

Even though I agree that we should not consider these events black swans, the reality, based on my own discussions with dozens of procurement and supply risk managers in recent weeks, is that we currently do. Until we change our orientation around supply chain risk to one of considering both so-called improbable events along with those we are more likely to predict with the right intelligence (e.g., supplier bankruptcies, quality degradations that can shut a line), I'm afraid we'll be stuck in a paradigm where we shrug our shoulders at what to do about the improbable. But there is hope. By considering the fundamental notion of building resiliency into all of our procurement, sourcing and supply chain operations rather than simply focusing on "risk management," we might be far better prepared.

"Managing resiliency today is as much about avoiding or minimising exposure to risk as it is about recovering and minimising the impact of a disruptive event." This is another gem of an observation. Read it again and reflect on it. And then think about how the investments you've already made -- or plan to make -- in supply chain risk management. Indeed, we'd all be far better off if, in our efforts going all the way back to spend analysis and sourcing, we considered how, as one of many criteria, going into a decision to allocate spend to a certain supplier, facility and/or region, thought about minimizing exposure up-front, rather than just recovering as quickly as possible after the fact.

"Supply chain risk management is dependent on linking detailed supply chain analysis into strategic planning processes rather than developing a culture of risk management." You won't find any disagreement or debate from us on this statement. But again, the actions of companies speak far louder than the wishful thinking of two folks who are experts in the subject. Today, the fact that the more advanced companies we speak with from a supplier risk management perspective are appointing dedicated individuals to the task rather than educating their broader teams and making risk awareness as important as cost reduction in overall and individual program objectives is all too telling.

Jason Busch

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