Thoughts around proactively insulating your supply chain from risks have been around for a while. Only few companies have taken it forward with a dedicated program inside their organizations. However it might be time for other organizations to actively consider it, primarily because of three reasons:
• A company is finding itself managing a complex web of relationships across geographies and supply chain tiers. Hence a company is susceptible to disturbance though the problem may not be with its immediate partners but several tiers away in supply chain.
• The business world is far more competitive than before and a small mistake can lead to greater consequences like being shut out of a market.
• The increasing unpredictability in world, be it commodity prices, climate, regulations or other events. An enterprise can never know what would hit them and where.
The starting point for a proactive approach is to make a business case. Any program for active risk management would involve investment. Investment is required not only in form of direct cost like data collection, analysis, administration costs but also in form of indirect costs like high inventory levels, burden of managing more supply chain partners, foregone discounts etc. The benefits are far more intangible in terms of avoided losses. A business case should endeavor to use examples from past history to quantify the benefits and then work out return on investment.
- Recovery Time and Cost: Allowable limits on time and money which can be spend to mitigate supply chain disruption.
- Business Impact: The target cap on any losses on topline, bottom-line, shareholders worth, brand image, company image etc. when a risk goes live.
- Severity of the risk
- Probability of occurrence
- Ease of prior detection
In-house Supply Chain: This would cover in-house manufacturing and other operations. The steps would be similar to above. Business Continuity Planning will be a key risk planning measure.
Outbound Supply Chain: Distribution to warehouses, distribution centers, retailers/dealers, reverse supply chain form part of this.
Any successful program for managing supply chain risks needs to have a wide breadth to cover every possible source of disruption and depth of analysis to derive actionable intelligence and plan. A well-defined proactive approach to manage risks is the best insurance a business can have in these unpredictable times.