Supply Chain Is Risky Business: What Can You Do About It?

Five Ways to Improve Risk Management Across Your Business Network

Supply chain risk management is a shared responsibility.

From financial planning to product development to supply chain operations, nearly

everything about running a business is risky—risky, in the sense that some aspects of the

marketplace will always be, to a certain degree, outside of your control and, therefore,

unpredictable. And while there are a number of ways to reduce your exposure to risk, an

important part of any effective supply chain risk management program is the recognition

that things won’t always go according to plan and that managing “bumps in the road” is

part of building a more resilient business.

So risk happens. But who’s responsible for dealing with it? Ultimately, successful risk

management means getting all processes and participants in a supply chain, or value chain,

aligned in order to facilitate collaborative planning, decision making, and execution. So

whether you’re in R&D, operations, IT, finance, sales, or supply chain, risk management

is a part of your job—and it’s an important part.

The following are five ways to improve risk mitigation capabilities across both your company

and your trading partner network. Share this eBook with others in your organization and in

your trading partner community to get everyone on the same page.

Five Ways to Improve Risk Management Across Your Business Network

1. Identify potential sources of risk in your extended supply chain.

2. Know the questions that will need to be answered if a disruption occurs.

3. Ensure the right level of visibility to find the answers.

4. Enable real-time collaboration on key business processes.

5. Build a competency in collaborative execution for smarter, faster resolutions.

Question

Identify potential sources of risk in your extended supply chain.1. A big part of the battle is identifying the sources of your supply chain risk. And while the sources will vary depending on the structure and go-to-market strategy of your company, it is useful to consider the following major categories of supply chain risk:

• Supply risk due to component shortages, increases in commodity prices, miscommunication with suppliers and contract manufacturers, unexpected yield loss, and the inability of suppliers to meet quality standards

• Exogenous geopolitical risk created by regional economic volatility, natural disasters, and political or legislative changes

• Inventory risk due to inaccurate demand forecasts, hedging decisions made in anticipation of demand from customers, and lack of overall supply chain agility and responsiveness

• Operational risk, including

• High costs of new regulations and inappropriate internal compliance controls

• The inability to retain key personnel

• The inability to integrate acquisitions well and deliver promised synergies

• IT systems disruptions

• The inability to license or enforce intellectual property rights

• Financial risk from foreign currency fluctuations, unplanned interest rates increases, changes to tax rates, losses in short-term investments, and uninsured losses

• Revenue risk from low product quality, competitive pricing pressures, loss of key channel partners, an overly concentrated customer base, late orders, and the inability to manage product transitions

Knowing your likely, or even possible, sources of risk allows you to not simply ask questions, but ask the right questions that can help you be better prepared for the unexpected.

Question

Know the questions that will need to be answered if a disruption occurs.2. Once you know where your risk may be coming from, you can think about what information you will need in order to effectively deal with an event or disruption. What questions will you need answered—what questions will your manager or your supplier or your customer need answered—if and when things don’t go according to plan?

The following are typical questions asked about any supply chain disruption; but, depending on your role in mitigating risk, your questions may need to be different or more specific:

• What is the problem?

• Where is the problem?

• When did it happen?

• What caused the problem?

• Who is involved?

• What is the impact on our revenue?

• What is the impact on our costs?

• What is the impact on our supplier relationships?

• What is the impact on customer satisfaction?

And, of course, the goal of obtaining answers to all of these questions is to help you answer the ultimate question:

What is the best and fastest way to resolve the issue?

Question

Ensure the right level of visibility to find the answers.

Supply chain disruptions and their associated impacts are not restricted to your first-tier suppliers and customers, so your supply chain risk management program shouldn’t be either. The most successful programs will always be designed to function end-to-end—all the way from supplier constraints to customer demand. Having visibility of supply chain data at every tier is critical.

After all, partial visibility will give you just that: a partial view of the problem, often requiring manual intervention to pull second-tier and third-tier information together. It is not unusual for many companies to waste over 50 percent of time to resolution correlating the timing and quality of data sources. And by that time, it’s likely the problem has changed. With margins and customer satisfaction hanging in the balance, companies simply can’t afford to waste time or take the wrong actions to resolve parts shortages, logistics disruptions, or changes in demand.

Of course, actually enabling real-time transparency across multiple tiers of partners—each with unique protocols, formats, and limitations—is no simple feat. It requires the right technologies, expertise, and commitment from senior management. Starting with cloud-based connectivity, and building on functionality to support multi-tier processes like supply planning, order and inventory management, and logistics tracking, companies are able to capitalize on the benefits of outsourcing and globalization, and even nearshoring, without the associated risks.

Multi-tier visibility not only gives you the ability to see disruptions across your extended trading network sooner, but also to respond collaboratively to sources of supply chain risk before operations and supply chain performance are negatively impacted.

3.

Question

Enable real-time collaboration on key business processes.

Once visibility is established, the strategic focus shifts to external collaboration. Without collaborative capabilities, companies are forced to depend on contingency planning in isolation from their key suppliers and distributors—while using phone, fax, or email to communicate, which are largely ineffective to perform speedy disaster recovery.

The most sophisticated companies have systems and processes in place to enable them to sense and resolve disruptions quickly and intelligently. According to a recent research brief by Aberdeen Group, “When it comes to unplanned events… it is clear that companies perform better, and demonstrate more execution agility when they operate on a collaborative technology platform that allows for bidirectional data flows on a near real-time basis.”

In the event of large-scale shutdowns or inventory losses, the ability to collaborate in real time enables your company to switch among alternate suppliers and coordinate short-term demand with order information. The ability to receive timely responses or commits is what makes situational collaboration the most critical requirement.

Whether it’s a flood, tornado, or sudden dip in demand, macro-environmental variables are constantly threatening the integrity of your supply chain. Real-time visibility and collaboration across the global trading network put your company in the best possible position to detect and resolve disruptions based on the most current, complete information.

4.

Question

Build a competency in collaborative execution for smarter, faster resolutions.

When one part of the supply chain is disrupted, the effects can have exponential severity across your entire trading network. The obvious solution is to identify and resolve exceptions before profitability or service levels are compromised—no simple task. If we can’t predict or prevent supply chain disruptions, what can we do to more quickly and intelligently manage and resolve them?

That’s where collaborative execution comes in—bringing together your people, processes, and technology to identify, assess, and resolve supply chain disruptions with the collective intelligence and “reach” of your entire trading network.

In a recent publication in Harvard Business Review, co-authors Thomas Choi and Tom Linton suggest that “Lower-tier suppliers that serve a number of markets often spot shifts in the economy early on—and can warn customers about them.” The ability to access information from every part of the supply chain, combined with the ability to view this information and collaborate with partners in a real-time context, are both critical aspects of collaborative execution: first, to identify disruptions as (if not before) they occur; and second, to inform the range of options available to resolve them.

In more tangible terms, collaborative execution with your trading partners allows you to expedite, transfer, or re-route existing assets to where the demand is at that moment. And that means fewer parts shortages, stock outs, and delayed deliveries—with boosted service levels to match.

5.

Question Start today by investing in the right technologies.

While many risks are, at least to some degree, unavoidable, they can be intelligently managed with the help of the right technologies and information systems. Are your current information systems capable of orchestrating external operations in a time of crisis? Is collaborative issue resolution possible in the event of a large-scale disruption? Are your operations designed to function across multiple tiers?

For today’s outsourced manufacturing models, ERP systems and traditional planning tools are simply not up to the challenge. For optimal control (and less risk exposure) within your extended trading network, multi-enterprise solutions are critical—after all, the bulk of your operations are occurring outside the four walls of your enterprise. When considering new technology solutions for your risk management program, look for the following capabilities:

• Any-to-any connectivity and message-type transformation, enabling all suppliers and customers to be onboarded quickly

• Easy connection to the existing systems of the organization, as well as customer and supplier systems, so that all information can be integrated along a single platform to enable collaboration, decision making, and execution

• Rich functionality to manage inter-enterprise processes, including inventory collaboration, collaborative demand planning, and collaborative order management

• Automated and secure message exchange

• Rich business intelligence and reporting capabilities, providing insights into the performance of individual suppliers and inter-enterprise processes

• Real-time, exception-based alerting and “what if”scenario analysis

• Rapid implementation and return on investment

Enabling integration with partners and then facilitating real-time visibility and collaboration capabilities should be the first objectives of your technology solution. The ability to see, collaborate, and, most importantly, resolve disruptions as they occur in your extended trading network is what defines a risk-resistant and resilient supply chain. Many companies are taking the steps to achieve the next level of supply chain excellence by implementing Supply Chain Control Tower solutions. A Supply Chain Control Tower is a particularly powerful platform for collaborative execution. A Supply Chain Control Tower offers a centralized view of planning and execution systems and a consolidated platform for enabling rapid recognition and faster response to change. The most sophisticated Control Towers will provide real-time dashboard visibility for multiple partners, as well as cutting edge analytics to assess the operational and financial impact of changes, and “what if” decision support to preempt issues or resolve problems rapidly.

Supply Chain Control Towers facilitate exceptionally sophisticated risk management programs—in large part, because they take full advantage of collaborative execution capabilities. These programs deliver much more than damage control—they offer a strategic, end-to-end frame-work designed to help your business work smarter and more profitably. So whether it’s clear or stormy, your organization is positioned for reduced risk and accelerated success.

What are you waiting for?

Don’t wait for demand to spike or disaster to strike before taking action to reduce your supply chain risk. Being proactive now means you’ll be better able to react quickly and intelligently when something does happen. Interested in finding out how to get started? Take the first step towards defining a more intelligent, profit-able supply chain by scheduling a call with one of our risk management experts.

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