Functional Variation: The Many Definitions of Supply Chain Risk Management

Spend Matters readers are all too familiar with the fact that I've done quite a bit of research in the area of supply risk management over the past few years. Yes, I admit to sometimes giving the subject too much play, although I'm doing it because I think we should all pay more attention to it. But my angle on it often harkens back to risk fundamentals from a procurement and supplier management view of the subject (versus one driven by a different functional or corporate area). Over on Supply Chain Matters, Bob Ferrari recently offered up a useful observation on the subject, putting into words something I've felt for a long time. Namely, that "it still seems to me that the definition of risk is different to everyone, and is more dependent on vertical or functional views of risk". But how do different groups inside organizations look at risk?

Bob has some insightful observations on the subject: "For procurement professionals, risk is directly associated with supplier monitoring and management. Mitigation is tied to early warning mechanisms related to supplier's business activities, accelerating invoice payments to financially troubled suppliers, as well as having back-up supplier plans in place. Logistics and transportation professionals view risk in the context of the spike in energy prices last year, which many believe can occur once again. Financial teams are focused on a potential spike in inflation that would impact both input and output costs. Manufacturing and materials professionals, while continuing to zealously pursue lean and cost control initiatives, are deeply concerned that leaner operations present increased vulnerability to a disruption in the business when something abnormal occurs."

In other words, supply risk management means something different to just about all stakeholders in the business. However, these different definitions and priority areas are not necessarily in conflict if an organization opts to centrally consider and implement programs addressing some supply risk. Bob summarizes it well noting that his "belief is that supply chain risk management has to have senior executive awareness, sponsorship and ongoing focus. Any firm with a vulnerable supply chain ... should have an active cross-functional team with the authority to identify risk vulnerabilities and define proper mitigation strategies." However, I'll add one addition to this by suggesting that ultimately, companies should strive to manage supply risk centrally or at least have centralized processes, technology and support with decentralized execution.

Jason Busch

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