(Supply Chain) Risk is Everywhere! Part II

Another presentation I hoped to make, but wasn’t able to (due to a prior commitment – and to be honest, if I didn’t have the prior commitment, I probably would have attended the parallel track on green supply chain) at the 5th Annual International Symposium on Supply Chain Management was the presentation on Risk Management in the Electronic Supply Chain by Anne Banks Pidduck from the University of Waterloo.

Just like the presentation and paper on A Supply Chain Risk Management Process covered in Part I, this paper also did a great job of classifying risks – but these risks are particularly suited to the electronic supply chain while the last paper was worried more about the physical supply chain for manufacturers and logistics services providers. It also provided some great recommendations. But first, the risks:

  1. Complexity of the Electronic Supply Chain System
    • Users do not know how to use the system.
    • Single point of failure.
    • Information is lost or incorrect.
    • Incorrect data is transmitted.
    • Complexity & Uncertainty leads to the bullwhip effect, mistrust, and chaos.
    • Project failure due to overwhelming complexity.
  2. Integration / Independence
    • Poor Quality Upstream.
    • Failure to integrate internal & external expertise.
    • Organizational conflicts.
    • External connectivity & network problems.
    • Lack of system integration.
  3. Technical Risks
    • Software errors.
    • System down.
    • System slow.
    • Virii
    • Denial of Service
    • Security Issues
    • Privacy and Confidentiality
  4. Data Management and Quality
    • Inventory Problems due to incorrect data.
    • Missed Orders (and customer loss).
    • Integrity loss.
    • Sensitive data compromise.
    • Critical data corruption.
  5. Schedule / Time
    • Single late supplier leads to downstream delivery failure.
    • Straight-through processing and the bullwhip effect ends up affecting all partner schedules.
    • Shipping errors lead to slow delivery.
    • Escalated system and process implementation leads to costly errors.
  6. Costs
    • Supplier change costs lead to higher upstream costs.
    • Insufficient people or financial resources.
    • Inventory costs from obsolescence, mark-downs, or stock shortages.
    • Slow or inaccurate systems reduce cash flow.
    • Incorrect data causes reminder notices to be sent to customers who have paid and while customers who haven’t do not get any.
  7. Business Processes / Operations / Production
    • Lack of appropriate methodology or production processes
    • Existing processes are not supported by the new system
    • Bullwhip effect creates phantom demand, overproduction, and overstock.
    • Inventory level becomes critical success factor.
    • Product and technology life-cycles get shortened.
    • Lean practice adoption leaves little margin for error.
    • The tendency toward supply base consolidation is not always correct.
  8. Business Environment Uncertainty
    • Unpredictable life-cycle demand due to competitive product introductions.
    • Increasing demand volatility across industrial sectors.
    • Constant changes in business strategy, internally & externally.
    • Outsourcing trends impact the entire chain.
    • Globalization increases market uncertainty.
  9. Personnel
    • Lack of management commitment and support.
    • Employees refuse to use the system.
    • Employees don’t follow procedures.
    • Insufficient user training.
    • Shortage of experienced staff.

But fear not! It’s not all bleakness and desolation. There are some generic risk resolution strategies that work across your risk categories. These include:

  • Avoidance
    Avoiding products, markets, suppliers, and / or customers that are riskier than the norm.
  • Behavior Change
    Encourage motivation and responsibility through corporate policy, contracts, and rewards for desirable actions.
  • Flexibility
    Introduce flexibility wherever possible – in the supply base, in the schedule, and in the production system, for example.
  • Mathematical Models
    A greater understanding leads to better prevention strategies.
  • Portfolios
    Spread the risk if you can.
  • Visibility
    Improving visibility across the chain decreases risk.

Moreover, there are some specific resolutions that you can use to address each of the system, technical, data, process, flexibility, and personnel risks outlined above.

  1. SCM System
    • Start with a small-scale implementation.
    • Use a flexible implementation schedule.
    • Continue with existing solutions until a full implementation is in place.
    • Implement internally first.
    • Document strong legal and enforceable contracts.
    • Encourage co-operative joint efforts.
  2. Technical
    • Firewalls.
    • Multiple Levels of Password Protection.
    • Structured Data Entry to reduce errors.
  3. Data
    • Formalize and maintain reliable backups.
    • Use paper-based backup procedures as needed.
    • Formalize data management.
    • Offer data and process visibility to supply chain partners.
    • Automate exception reports.
  4. Business Process
    • Redesign work processes as needed.
    • Integrate business processes.
    • Divide larger processes into smaller ones.
    • Separate business functions where appropriate.
    • Coordinate work between production planning and inventory management.
    • Control production with appropriate levels of buffer inventory.
    • Use just-in-time production.
  5. Business Flexibility
    • Adaptable, flexible business practices.
    • Materials flexibility in production.
    • Multiple backup suppliers.
    • Flexibility in production schedules.
    • Discontinue high-risk products, markets, suppliers, and/or customers.
  6. Personnel
    • Adequate training on systems.
    • Training on privacy, security, and system independence.
    • Appropriate behavior changes.
    • Top management support.