Friday Rant: ISM’s Risk Conference — Is Managing Risk Even Possible?

An inaugural ISM Risk Conference kicked off July 26 at the O'Hare Marriott in Chicago with about 160 attendees from all industry verticals: 3M, American Red Cross, Apple, Boeing, BP, Cintas, GM, Harley-Davidson, Johnson Controls, McDonald's, Northrop Grumman, PG&E, RJ Reynolds, and many more. So far I have attended half the conference, and it is a solid event, much more like something that WBR (that runs ProcureCon events) would put together. It's tightly orchestrated with consistently good speakers, and an intimate atmosphere where you get to know participants. And the participants are of higher caliber. I say this from my experience from perhaps 10 annual ISM conferences; those events are good but owing to their massive scale they become more diluted than a small event like this.

What is risk?
Back to risk. How often do you stop to think about what this means to your company before anything happens? Companies need to control who they do business with; this is fundamental to what supply chain management is all about. Once you start to think about this, risk lurks around every corner and spans so many areas:

  • Components: the "easy" question -- will we be able to get the commodity?
  • Vendors: and not just traditional financial risk profiles! Consider also ownership structure; do companies with venture capital funding equal unacceptable risk?
  • Country: geopolitical (disasters made by man and nature) are often unavoidable but it's important to be faster than others (maintain agile operations) and secure alternate sources or switch to other designs
  • Logistical: goods in transit. This isn't usually about pirates and cargo ships, but more about product obsolescence (high tech products) or expiration (short-lived pharmaceuticals)
  • Demand forecast inaccuracies: a long supply chain combined with demand fluctuations or uncertainties creates further problems. If you misread where the market is going, how long before corrections cascade through the supply chain? In this case, optimizing products per postponement models can help (e.g. add channel-unique options or customer preferred choices last to preserve flexibility) this implies shipping subassemblies and localized final finishing

Much of the above isn't new info. And if you conduct full market sector (including supply and demand) analysis you will uncover more aspects to consider.

Risk models -- or gut feel?
One interesting question that came up at the conference was just how to consider or assess risk. The supply chain people say "I think" a vendor is risky, or not, whereas the financial folks want look at numbers and models that quantify the decision. The question is whether you can develop a hard model that provides objective numbers without this becoming so rigid that the baby disappears with all the bathwater. More importantly, any such model will need extensive supplier contributions around input -- and will privately held suppliers (on average 80% of all suppliers are privately held) really provide such details? Individual credit applicants might provide personal info down to their flossing habits, but suppliers selling to corporations have a different outlook on disclosure. Besides, when the financial markets fell a few years ago, even the fancy credit models collapsed, so how much faith can you place in models? I have no answer to this question, but I caution against overreliance on models. There's a lot to be said for good ol' gut feel and smell tests. Obviously not as scalable, and there are solutions out there that look promising (SAP Supplier InfoNet and Resilinc are two that come to mind).

Agile design; agile procurement
Another takeaway from the event was how disastrous events ultimately have a design/engineering component to them: the component, or whatever it is that you can get -- what can you replace it with? The answer to this question lies with the engineering team. Tt is clear that to be successful, procurement needs to have established a smooth way to work with this area to cut cycles. This is probably more important than most other issues. You can't foresee what will happen, but something will, so conducting rapid change exercises and getting bottlenecks out this process will be invaluable when a live event occurs. Investing in the right technology solutions so that distributed engineering and procurement teams from multiple divisions and companies can smoothly interact around the clock with globally dispersed suppliers will provide the backbone for this effort.

I think ISM has gotten this event off to a good start. They have exceeded their own participation goals set for the event, and it is an interesting topic. Philosophically speaking, "managing risk" is of course a bit of an oxymoron, but it is at the heart of what supply chain is all about -- developing an understanding of areas of weakness or exposure and then developing a game plan (including enhancing supply chain agility) is critical to being better than your competitors at managing the next surprise.

We never step in the same river twice. The next time will always be different.

- Thomas Kase

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