Supply Chain and Risk Management: Embracing and Even Encouraging Risk

The tenth and final concept that I discussed in my “what’s next” presentation at ISM’s Supply Risk Management conference regarded the contrarian perspective on risk: “embracing and even encouraging risk (the right types, of course)!” My premise here is that if risk can be quantified and understood, it can also be mitigated, bought/sold, and even created (by design) to impact competitors or the market. Of course this takes an advanced understanding of many variables in the supply chain and/or unique or unfair information advantages at a specific point in time (as well as the ability to plan for various scenarios that a particular action may create).

This may sound advanced, but it’s not a new concept. Trading companies have long specialized (without calling it as such) in creating risk for competitors and even customers. This could include cornering the market for a given commodity on a spot market basis because they have inside information (certain types of which are legal in the commodity trading world) around a cargo ship running aground destined for a particular market that others do not yet have.

This is one example of creating risk for others. There are numerous ways of “encouraging risk” that can lead to competitive advantage, including a broader supply market / contracting strategy with strategic suppliers, investing in lobbying/regulation as well as developing intelligence sources that can potentially plant information—leading others to create strategies based on an incomplete or incorrect set of information.

The concept of creating risk for others is, without question, a very large grey area. But as the CEO of Goldman Sachs recently said, “It is naive to think we can operate without conflicts. They are embedded in our role as a valued intermediary.”  In our role in the supply chain and procurement, we too are intermediaries and potential arbiters of risk!

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