Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.
Aon has released their 2009 Global Risk Management Survey which lists, in order of priority, the top ten global risks, which are:
- Economic slowdown
- Regulatory/legislative changes
- Business interruption
- Increasing competition
- Commodity price risk
- Damage to reputation
- Cash flow/liquidity risk
- Distribution or supply chain failure
- Third-party liability
- Failure to attract or retain top talent
Aon reportedly surveyed 551 companies around the world in a variety of sectors; the respondents included government agencies, private enterprises, and public companies.
I don’t want to quibble about what should or should not be on the list, but I think I take a little issue with the order of things, namely that supply chain failure is ranked so low when the report recognizes that supply chain failure is linked to higher-ranked risks. Granted, I’m quite partial to supply chain issues, but that’s because I also recognize that the holistic (internal/external) supply chain touches so very much of an enterprise’s operations, and I often wonder if executives and other professionals consider the internal nature of their supply chains when they look at their operations, whether local or global.
So, what are the impacts to supply chain failures in regards to other higher-ranked risks?
- Any supply chain failure will result in a business interruption at any point in the supply chain. The severity of the interruption will depend on the seriousness of the failure.
- Supply chain failures can enable competitors to gain footholds with your customers. The failure to deliver first-quality products on-time in the needed quantity to the right destination can have your customers looking elsewhere to supply them the goods you’re selling.
- Buyers may not have as much control over the prices of the goods they are buying, but through better forecasting and planning, contracts that lock in commodity prices can be secured and create a hedge against price fluctuations. This requires detailed knowledge of the supply chain from sales back through purchasing, and must balance sales forecasts with manufacturing & distribution throughput, and inventory storage capabilities and carrying costs.
- The failure to perform quality checks through the supply chain can result in injury or death to those who consume or otherwise use your products, causing reputation damage and possibly allowing a competitor to gain a foothold against you with a customer. Why would a company pay for substandard raw material or components, and why would a company want to distribute similarly other-than-first-quality goods?
- Cash flow can be severely constrained by holding too much raw material or finished goods inventories, especially when they go obsolete. Here again, detailed knowledge of the supply chain, from sales forecasting back through purchasing, can prevent excessive purchases and wasteful assembly or manufacturing efforts.
The supply chain is not just a homogeneous area of an enterprise, separate and distinct from the others. Whether looking at risk, fraud, or efficiencies, start with the supply chain and examine it in detail for what it is: a holistic overview of an enterprise comprised of interconnected links, where interruptions can travel and manifest themselves into something far worse than what they started out to be.