Hanjin: Why are today’s supply chains more at risk? Part 2

My last posting focused on the potential use of analytics and big data to protect an enterprise’s ability to generate profits and offered the following definition for Supply Chain Risk Management (SCRM);

“the development of strategies to minimize or eliminate the financial impact of supply chain disruptions through the identification and prioritization of possible disruptors at all points in the supply chain, from sources of raw materials to the final delivery to customers”.

In this posting we will address the following questions:

• Why are today’s global supply chains more susceptible to significant disruptions?

The success of adopting Lean practices. Yes, the widespread adoption of Lean has provided for reduction of waste, increases in efficiencies and lower operating costs.  However, it has also eliminated the access to alternative choices, if the primary resource of an operation is no longer available. 

Expansion into new operating regions while also shifting production to lower cost operating areas. Today's supply chains simply have more moving parts that go beyond the direct span of control of one company; more moving  parts, more risk. 

The volatility of operating in today’s world. Political uncertainties, currency fluctuations, shifts in market demands and social unrest are further factors that can throw a curve ball to any global supply chain operation.  Think about how the Arab Spring impacted business throughout the region.

• Who needs to be involved in creating, implementing and maintaining an effective SCRM program and What can you do that goes beyond Crisis Management?

Supply Chain Risk Mitigation strategies should always be based on three basic principals; redundancy, contingency and policy mitigation strategies. Each can involve elements of adding costs, making specific operational changes or simply changing an operational policy. 

To be effective, the identification, selection, justification and internal socialization of the mitigation strategy must be cross-functional and this often means involving Sales, Marketing, Finance, Supply Chain as well as other appropriate functions.  If these types of decisions are made in a vacuum (siloed) they will never survive the organization resistance to change or the next set of budget cuts.

• How do you determine that your SCRM strategies are working?

Your company must have a consensus based “measuring stick” that is cross-functionally agreed upon.  An agreed upon set of measurements that are aligned with the organization’s priorities and that allows for an organizational consensus on how to identify, measure and prioritize significant, potentially disruptive risks. 

There is no better way to do this than to understand the specific financial impact of each potential disruption, e.g. how much it would hurt the bottom line.  Once created, the same set of measurements should be used to monitor the mitigation impact of each implemented strategy.

I would love to hear your comments.

All the best,