Why Not Risk Manage the Supply Chain?

Spend Matters would like to welcome Richard Rich back to our virtual pages to continue the conversation on supply risk management.

The Corporate Executive Board published what they consider the top ten risks facing corporate America as of January 2010. According to me, nine of these risks have a disrupting impact on a supply chain, though some are more apparent than others. All of them can stop a supply chain from functioning as an adaptive, smooth process, supporting the organization it serves. If my thinking holds logic, the supply chain is an enterprise (corporate-wide) risk. Why is enterprise risk important? Because the risk mentioned, as it relates to the supply chain, impacts every part of the organization that buys, stores, and transports. Applying risk management tactics to the supply chain is a solution to the disrupting risks. These tactics will yield a mobile, adaptive, and light supply chain that reacts well to changing economic conditions, blips in markets and material shortages. The key is to recognize, analyze, and anticipate risks and make plans to mitigate them.

Many supply chain professionals are not convinced. Risk managing the supply chain is a non-value add gimmick. Risk managing the supply chain is a "make work" endeavor, or a fad. Others believe that the only benefit of this effort comes from an economic downturn. This viewpoint flouts an innovative mindset and doesn't place the supply chain where it should rightfully be in an organization: at the executive/strategic visioning table and part of the executive decision matrix. It is only a matter of time before this thinking will be recognized and applied successfully.

The Corporate Executive Board says the top ten risks facing American businesses are:

  • commodity prices
  • increased competitive pressures
  • third party solvency
  • strategic change management
  • inflation
  • fraud
  • talent management
  • continued recessionary pressure
  • political trends
  • lack of investment in product development

These are not in any particular order. Commodity prices, inflation, fraud and third party solvency are obvious disrupters of the supply chain. It becomes hazy for supply chain professionals and executives in observing the others. All of those can cause major disruptions to the supply chain. Risk tactics applied to nine of the ten risks can not only expose the disruption of the supply chain, but also provide clues as to what to do about it.

Professionals in SCM could certainly argue that strategic change and talent management are not risks in the supply chain. I argue that they negatively impact the effectiveness of a supply chain, as they represent risks on an enterprise level and affect several areas of an organization at the same time.

What tactics would I apply, then, to fix this problem? I would use risk event analysis to define conditions of individual risks as they relate to the supply chain. I'd then identify (with assistance from internal and external subject matter experts) events triggering the risk conditions as defined, letting the process flow to the end of the analysis. Benefits for executive management are a mitigation plan, recommendations for implementing that plan, a method to allocate resources, and allocation prioritization. Flowing this knowledge through a risk event analysis tree will prove my point, strengthen the supply chain, and perform a terrific SWOT Analysis on SCM and on the internal organizations for whom SCM functions.

This kind of analysis can strengthen critical long-term contract relationships or strategic alliances. Perform this analysis periodically and these relationships become well-oiled machines.

The supply chain has many links, and risk analysis tactics can seek out the weakest ones and give them strength. It provides value to the entire corporation by making the supply chain responsive, adaptive and efficient.

- Richard Rich

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