Piecing Together the Supply Chain Risk Management Puzzle

At the Procurement Leaders forum in Boston late last month, David Simchi-Levi, a professor at MIT, gave a presentation that was a bit out of the ordinary for procurement conferences. I must say, it provided some interesting food for thought. His talk "Creating Value Through Innovative Procurement Strategies" examined supply risk from the lens of operational strategies for increasing resilience in the face of risk. He categorized supply risks according to price and financial impacts and presented strategies for mitigating exposure to price risks and reducing exposure to supply risks, plus tailoring strategies according to the customer's value proposition -- whether types of products, customers and channels.

Simchi-Levi summarized his points with four "rules." Look at Rule #2: "The higher the supply and price risks, the more important it is to invest in procurement flexibility." One of the important challenges in garnering support and implementing an effective supply chain risk management (SCRM) program is demonstrating return on investment to senior management. Simchi-Levi discussed time to recovery (TTR) as a resilience metric which can guide companies in decision-making alternatives for SCRM. He cited Cisco, for example, who uses a TTR scorecard as a cornerstone of its well-regarded supply chain risk management process.

The presentation coincided with the publication of his new book, Operations Rules: Delivering Customer Value Through Flexible Operations (MIT Press, 2010), which contains 36 rules in all. (Disclosure: I was an early reader and provider of feedback for the manuscript). The book proposes innovative approaches to flexibility and ways to help firms operating global supply chain networks to reduce risk. It also delves into procurement practices, particularly in the area of supply contracts, more deeply than Simchi-Levi was able to do in a 35-minute presentation at Procurement Leaders.

The chapter on supply risk mitigation strategies is also useful. In fact, one thing that I found particularly interesting about the book is the linkage between supply chain management and supplier management in tackling supply risk, a connection that I have often found missing in the tendency toward silos in procurement and supply chain management. Looking at risks from the supplier management and procurement lens is just one piece of the SCRM puzzle.

- Sherry Gordon