Dietary Changes to Our Risk Appetite

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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.

The cover story of the June 22nd, 2009 issue of Information Week magazine was titled: “What’s Your Appetite For Risk?“. The article was part of the magazine’s annual security survey.

What we initially learn in the article should be of little surprise: the recession is taking its toll on all aspects of company operations, including investments in technology security and compliance, though these two concepts should not be confused with one another. A lot of focus was given to security and compliance within cloud computing.

With budgets stressed and spending trimmed, the appetite for risk has been forced to grow a little larger as priorities are examined in more detail to determine where — and how — limited dollars should be spent. As the article continues, compliance requirements are getting funded to keep (public) companies surviving from one audit to the next, but that doesn’t really mean that risks are being managed properly.

A reader of my blog posts (on Sourcing Innovation) contacted me in early July to tell me about a supply chain risk management success story. Nick Woods is in the public relations department of Red Prairie, a software company that specializes in warehouse management, transportation, and workforce management solutions. Nick shared with me a press release on the implementation of Red Prairie’s warehouse management solution at Sargento Foods who is known for their cheeses, sauces, and snacks.

In the press release, the VP of Logistics at Sargento Foods, Dennis Roehrborn, was quoted as stating: “By upgrading the solution in our Plymouth, Wisconsin distribution center and satellite plants in Kiel and Hilbert, we are better equipped to exceed customer expectations for accurate order fulfillment and on-time delivery.”

While there are many risks to supply chain operations, the failure to meet customer expectations is certainly a critical one. Regardless of how great your product is few customers will tolerate repeated supply chain disruptions that increase operating costs and result in a failure to cost-effectively get the right product on the store shelf when the customer wants to buy it.

Here is a great example of a company who recognized risk and managed it by investing in the necessary technology. Mr. Roehrborn also states that the implementation was minimally disruptive to existing operations and that productivity target goals were exceeded with the new software.

Seems to me like Sargento Foods has such a large appetite for its supply chain relationships, (and probably a good appetite for the quality products they produce too), that they decided to put themselves on a diet when it comes to risk.

The need to exceed customer expectations is even more important in a recessed economy, and companies must proactively assess the risk of losing sales and customers versus the cost of doing nothing. Managing risk doesn’t require taking bigger bites than you can swallow at one time — that would be foolish when tackling most any project. Even if you have to nibble at it a little at a time, chewing carefully and thoughtfully, make the investments necessary to little-by-little reduce risk and improve performance.

And don’t forget to brush regularly and floss daily.

Norman Katz, Katzscan