Towards the end of 2011, I spoke at the Harvard Business Review’s Conference on Supply Chain Risk Management in Poland, where I presented the concept that Risk Management should be incorporated into the very fabric of the business, and seen as an opportunity to evaluate the end-to-end Supply Chain, identifying its strengths, threats and weaknesses, and positioning all of these as opportunities to improve.
Anything that could potentially impact your ability to deliver to the customer should be highlighted as a risk. This goes for both internal issues as well as external ones – in fact internal factors, factors that are within your ability to control, are twice as likely to impact the Supply Chain than external factors.
Evaluate your Supply Chains
The starting point for this exercise should be to first step back and evaluate the different Supply Chains that actually exist in your business. It is unlikely that you only have one type of demand in your business, but very likely that you only have one way of satisfying that demand. The key here is to realise that you are potentially taking a ‘cookie cutter’ approach, when in fact different Supply Chains may exist that have different competitive drivers, and thus require different metrics and different supporting behaviours.
Do you measure the purchasing department simply on their ability to buy goods at the cheapest cost, when the key measure should be ensuring reliable supply?
The Weakest Link?
Geographically map out your different Supply Chains – where are the external risks? You may believe you know your suppliers – but do you know their suppliers? Or their supplier’s supplier? Any weak link in the Supply Chain could bring your business to a crashing halt.
Tolerance for Risk
Once you understand the different Supply Chains that exist, what they look like, what their main competitive drivers are and what metrics to concentrate on in order to drive the right behaviours to get the right results – then the next step is to analyse the risks and disconnects that are either preventing you from winning, or present a potential risk in the future. Supply Chain strategies that focus on customer service (e.g. reliable delivery) or where the cost of late or lost deliveries are high, generally have a LOW risk tolerance, and thus could be drastically impacted by any risk that affects your ability to supply. Strategies that focus on cost reduction, or where the cost of late deliveries is low, generally have a HIGHER tolerance to risk. Ultimately, the tolerance for risk will determine how much the enterprise will invest in mitigation measures vs. reactive efforts.
Analyse the Impact
One of the key points I proposed is that you should analyse the impact risks have on your ability to compete, and also evaluate whether your risk mitigation activities support your competitive strategies. For example, it is great that you have identified an alternative source of supply – but if reliability is your key competitive driver, and this alternative source is cheap but unreliable, then again this has just strategically injected risk into the business. Looking at business issues and risk management as an opportunity to drive better competitive performance means that not only will you mitigate risk, but you may find new opportunities to strengthen your Supply Chain to create improved levels of performance.
Risk Mitigation
Fully understanding your Supply Chains and their competitive drivers is the best Risk Mitigation strategy you can make – and the biggest risk you can take is not taking time to think about the risks.
Have you taken the time to identify the different risks that impact your Supply Chains, and the effect these can have on your ability to compete?
Sean CuleyBusiness Transformation Expert (SCOR-P, FCILT)Sean Culey (SCOR-P, FCILT) is a global keynote speaker on the topic of disruptive technologies and their impact on businesses, the economy and society. He is the author of 'Transition Point', a detailed look at the causes of technological disruption and the impact it has had on our society, and how the current wave of technological change - from robotics to AI - will completely disrupt our business models, economy and society at large. Sean is also the author of numerous articles published in magazines such as Forbes, The World Financial Review and The European Business Review.
Sean is an expert at helping companies develop and deliver new customer centric business models, and he advises supply chain leaders on how to align their organisation to ensure they are executed successfully. He has 25 years of experience including six years as CEO of business consultancy ‘SEVEN’, and a decade working for Cadbury Schweppes, where he was the Global Design Authority on what was the world’s largest SAP implementation. He has developed a series of masterclasses about Disruptive Technologies and how companies can create new business models to exploit them.
Sean is also Visiting Fellow at Cranfield University and a Fellow at the Chartered Institute of Logistics and Transport (FCILT). He is also the UK’s only certified SCOR Master Instructor and a futurist for IBM Watson.