Supply Chain Risk Management
The Growing Complexity of Supply Chains Requires Comprehensive Management
To be competitive, today's businesses are focusing on their core competencies and outsourcing everything else. This makes businesses more agile in changing market conditions. But this increased agility comes at a price: higher risk within the supply chain.
With so many intersecting components, complex supply chains can break down at any point and leave core operations vulnerable. Time zones, culture, geography, language, and even politics all become elements of your supply chain. Supply chain risk management is the process of monitoring, mitigating and planning for such vulnerabilities.
A break in the supply chain can lead to loss of reputation, loss of business, or even forced acquisition. Businesses can radically shrink if unable to deliver products to meet contractual or market obligations. Supply chains are often interdependent; a breakdown in one creates ripple effects among others. A production problem or a supplier breakdown can cascade outward. Regardless of whether a supply chain issue has an internal or external cause, failure to deliver may prompt a business's customers to buy from someone else.
Brave New World
Supply chain risk management is a relatively new concept. Some enterprise resource planning systems (ERP) incorporate some aspects of risk management but they are often not intuitive or well designed. Most ERP systems focus solely on productivity. They can help set the most efficient inventory levels, but lack the ability to analyze whether that inventory would be sufficient to last if something happened to disrupt the supply chain.
In order to be effective, supply chain risk management systems must understand assets. Assets include anything that effects a business's operations. If a supplier is compromised or a piece of equipment or an IT system breaks down, the business must be able to quickly understand the impact. Focusing on the cause of a disruption is fruitless. Rather than what happened, the business needs to quickly ascertain what has been impacted. Only an asset-based approach to supply chain analysis can provide those answers. Traditional supply chain management is simply not built to model complex interdependencies and often has only a limited knowledge of supply chain assets. Good supply chain risk management systems must have extraordinary data interoperability.
The risks to an organization are inherent in its assets. If you understand the interdependencies of your assets, then mitigation and continuity planning is easy to do.