Effective Supply Chain Risk Management Decisions

First and foremost, I hope that this posting finds each of you and your families safe and well.

Summary

COVID-19 has brought the field of supply chain management into the mainstream conversations of shareholders, board rooms and legislative arenas. Dependencies on foreign production, shortages of essential products and the explosive growth of e-commerce are just a few of the “new” realities that will drive new supply chain paradigms.

One significant change will be the need to have Supply Chain Risk Management (SCRM) best practices integrated into the strategic and operational fabric of the operation. SCRM practices that are based on knowing the precise profit contributions for each product, customer and channel and not just relying on standard cost accounting measurements. Differentiated strategies based on smart performance groupings of customers, products, channels and suppliers. Just having a contingency plan that sits on the shelf will no longer be acceptable.

Points Of Focus

COVID-19 has exposed many supply chain related resiliency issues from handling shortages in product availability to meeting surges in demand. Shareholders and Stakeholders will require supply chain executives to demonstrate what ongoing SCRM actions they are taking to manage risk and increase resiliency. Why? Because their investments and livelihoods depend on it. SCRM strategies and actions will be a key part of the expected table stakes to attract and maintain investors as well as employee talent.

Technology will play a vital role in effective SCRM programs. Much of the current discussion around technology and supply chain disruptions focuses on having end to end supply chain visibility. This invariably leads to discussions focused on Control Towers and Asset Mapping solutions. Clearly these solutions provide critical information when minimizing the time it takes to react to a disruption. In addition, Network Analysis, Inventory Planning and Simulation tools play an important role in examining alternative long-term scenarios that can add resiliency while balancing cost and service.

But there is another form of end to end visibility that is equally important. Having more precise measures of profit contributions related to the end to end components of a supply chain; suppliers to customers, products and channels. This type of visibility provides actionable insights on where disruptions will hurt the most.

The reality is that customers, products and channel combinations have a wide degree of variation in margin contributions. In fact, for many companies less than 15% of the customers they serve and the products they sell contribute 80% of their net operating margin (the 80/20 rule seems to have been broken).

Many organizations are finding that the impact of the Trade Wars and COVID-19 have already stretched their resources and cash reserves to the max. Creating SCRM strategies and making subsequent decisions that protect the majority of operating profits and net cash flow is critical.

Takeaways

Having specific and accurate profit insights empower decisions that smartly allocate resources and produce a much higher ROI for investments that add supply chain resiliency. Resiliency measured by the “protection of profits” and reported to Shareholders and Stakeholders reported on a regular basis.

How will your company prioritize its supply chain resiliency decisions? Doing nothing is clearly the path to extinction. Generalized decisions may allow for survival but making repeatable, intelligent profit based SCRM decisions is key to not just surviving but thriving.

Please comment on this posting or email me at [email protected] .
All the best,
Richard Sharpe