Supply Chain Leaders Internalize Risks Before They Come To Pass

A recent article in the Harvard Business Review on leadership in the age of transparency noted that whereas, in ages past, companies could ignore “externalities” and still prosper, today’s leaders are finding that, in order to truly prosper, they have to internalize the “externalities” and successfully manage them long before they creep into realm of regulation or law.

(In economics, an exernality [or transaction spillover] is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. As a result, in a competitive market, prices do not reflect the full costs or benefits of producing or consuming a product or service, producers and consumers may either not bear all of the costs or not reap all of the benefits of the economic activity, and too much or too little of the good will be produced or consumed in terms of overall costs and benefits to society . The examples give by the article are the tobacco industry, that profited by burying research it did in the seventies that proved smoking was an addiction and not a choice for most people, and the use of trans-fats, which are only now being outlawed in restaurants despite the facts that it has been well known for a while that they have no health benefits and provide a danger to some people.)

Supply chain leaders take a similar approach to supply chain management. Whereas good business leaders look beyond the market of today to the market of tomorrow where regulation, activism, or other forces could threaten their business and find ways to internalize those threats and eliminate them before they occur, supply chain leaders are always on the lookout for issues that could cause a major supply chain disruption. Leaders have noticed the increase in natural disasters in recent years that are posing supply chain threats and developed alternate routes and contingency plans. Leaders keep on top of the results of additive and chemical testing and find ways to remove dangerous chemicals and additives from their products long before regulations prevent their use. Leaders are on top of supply and demand swings and proactively lock up supply before it becomes a problem. Leaders look ahead and internalize what’s important.

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