Supply Risk … and Supply Risk Management … are among my favorite topics because supply risk is everywhere … even where you least expect it! Just ask Boeing … a company that had to delay the launch of its next major commercial aircraft for want of a fastener!

Given the underestimated importance of this topic, I’d like to point out a recent article in Global Logistics & Supply Chain Strategies, recently reprinted on Supply Chain Brain, called “Snake Eyes!!! The Failure to Manage Risk in Supply Chain Can Be Catastrophic”.

Strikes, storms, congestion, disease, terrorist attacks, supplier failures, missed deliveries, raw-materials shortages: the possibilities seem endless. When it comes to supply risk, the possibilities are. And it’s not just natural disasters, work outages, or power failures you need to be concerned with. A fastener, a screw, even a dab of glue … each of these can shut you down if you overlook them.

The article, although a bit long winded, did have some good advice. And even though I’ve covered most of it in previous posts, it’s important, so I’m going to cover it again.

• If a competitor starts locking up large quantities of supply for a raw material or component you need, take action immediately.
  There’s more than one reason Apple conquered the personal music player market and are conquering the cell phone market.
• Visibility is key.
  Otherwise, you might be on the receiving end of the bullwhip.
• Balance the Cost of Mitigation vs. the Cost of Recovery
  For example, if your copper is being supplied by a single supplier, that’s probably not great, but chances are you can always switch suppliers in a pinch and not pay much more than market price (as there are multiple geographic sources). But if your tomatoes are only being supplied by a single supplier that only buys from one geographic area in a hurricane zone, that’s a recipe for disaster. Not only would you lose your supply, but so would everyone else that buys from the same region. Finding a new source of supply in a pinch could be a lot tougher.
• Asses and Rank all of Your Supply Risks
  What’s the probability of it happening? What’s the potential cost of an outage in recovery? How much would it cost to mitigate?
• Don’t just focus on physical risk
  Forthcoming regulations can post risks that are just as harmful if they cut off a current source of supply.
• Look for hazardous materials
  And eliminate them if at all possible!
• Use dynamic scenario planning and capacity modeling
  It will help you identify some of the hidden risks.
• Hire a few tight ends for your risk management team.
  They’ll help you block out distractions, catch passes from your supply chain partners, and create a stronger pocket in your supply chain organization.
• Communicate, Communicate, Communicate, Communicate
  And don’t forget to Collaborate, Collaborate, Collaborate, Collaborate!
• Portfolios aren’t just for artists!
  Having a portfolio of good supply chain partners can help you out if things go sour.
• Have alternate distribution strategies.
  It’s not just overflowing ports that you need to worry about, it’s border closings, and, every now and again, collapsing bridges.
• Don’t forget … services are part of the supply chain too!
  Good service is often the key to customer retention.

Risk is Everywhere … and if you don’t find it, it’ll find you!

Supply & Demand Executive recently published an article on “What You Can’t Afford Not to Know About Your Suppliers” by Jim Lawton of Open Ratings (acquired by Dun & Bradstreet), who guest-posted Five Types of Supply Risk, and How to Mitigate Them and Winning the Battle on Risk: Information and Technology back in February.

In the article, Jim states that although no one disputes that the procurement and supply chain function across multiple industries has taken on a far more strategic role today. Despite this rise – even with the introduction of new business processes and programs, skills and staff development initiatives, and new technology and systems – few organizations are equipped with the global insight necessary to operate at a world-class level on a new stage. I’d have to agree. The recent rise of China-related fiascos is just one example. More can be found in the article on “Worst Supply Chain Disasters” or in various headlines over on CNN.com.

Jim goes on to note that from regional supplier directories to detailed and current performance, risk and capability intelligence, global supplier insight can become as indispensable to sourcing and supply management as a stage is to an actor. It can also help organizations understand on a total landed cost basis – quantifying price, performance and risk – the difference between regional suppliers and those from emerging markets such as Mexico and China and that companies need global supplier insight and content that focuses on three key areas to maximize their supply management results. These three areas are:

• Supplier performance and quality management
• Supply risk management
• Supplier content and connectivity

Furthermore, to provide insight and connectivity into these three areas, global supplier insight solutions also need to deliver real-time content, analytics, risk management and supplier enablement capabilities. These solutions also need to be offered in a platform-agnostic environment, leveraging existing processes, systems and investments. Like Bloomberg’s financial information, which traders and financial managers use to improve their decision-making in the capital markets, purchasing and commodity managers must receive this type of content they way they prefer to digest it, whether pushed to their own desktop or through a specific application or even a designated terminal. After all, global supplier insight solutions can enable procurement organizations to take their supply performance to the next level. By empowering individuals with insight and connectivity, they bridge the gap between the internal and external, proving invaluable for strategic and tactical decisions alike.

The Supply Chain Management Review recently posted an excerpt from an article by Jayashankar M. Swaminathan and Brian Tomlin that summarized six common pitfalls and strategies for avoiding them that’s worth a quick look. In “How to Avoid the Risk Management Pitfalls”, the authors summarized the following pitfalls and their mitigations:

• Assuming disruptions can only occur when operating at normal strengths. Disruptions can occur at any time – even when you are in the process of recovering from a disruption. Human-caused disruptions in your supply base and natural disasters can happen at any time.
• Assuming yours is the only company affected by a disruption. If the disruption is caused by a natural disaster, chances are other suppliers are also affected. For example, if a tsunami wiped out 25% of the cocoa crop along the west coast of Africa, then your back-up supplier is likely to have just as much of a problem meeting your needs as your current supplier and your emergency supply, if attainable, might cost considerably more than you originally planned for.
• Ignoring the supply risk associated with demand-pooling tactics. Demand-pooling strategies might work great under normal circumstances, but they can lead to a false sense of security since they might serve only to understate the seriousness and immediacy of a disruption should one occur.
• Ignoring demand risk when choosing a supply-continuity tactic. Just as you need to factor in supply risk when evaluating demand pooling, you need to factor in demand risk when evaluating supply-continuity because supply-continuity can seriously increase your demand risk. Insuring significant supply can be costly, and if the demand never materializes, this can result in a significant loss.
• Allowing managers’ risk attitudes and timelines to determine strategy. Managers can vary widely in their tolerance for risk, from extremely lax to dangerously intolerant. Furthermore, even if a manager is willing to invest in supply-chain resiliency, a manager’s choice of tactics can be strongly influenced by his tolerance for risk. Good risk management entails having the right strategies in place for each identified risk, whose cost and effort should be dependent on the probability of the risk occurring and the financial damage that could be caused by the risk materializing.
• Building short-term resiliency at the cost of long-term vulnerability. Supply risk management is not effective if only performed as an intermittent activity carried out every few years on an irregular basis. A good risk management strategy today might not be a good risk management strategy tomorrow. As the authors note, you need to be continually vigilant in scanning for changes in your operating environment that may necessitate adjustments to your resiliency strategy.

I summarized some good strategies and tactics to manage demand and compliance risk in this post back in April. Some of the better strategies and tactics include:

• Supply Buffer Management
• Cycle Time Reduction Strategies
• Collaborative Processes
• On-Going Screening and Quality Control Processes
• Continual Training
• Regular Supply Chain Audits

In addition, as I summarized in this post that summarized Aberdeen’s supplier performance and risk management benchmark report, there are a number of enablers that you can implement to improve your risk management program management. These include:

• Supplier Scorecarding and Reporting
• Automated Calculation of Key Supplier Performance Metrics
• System Notification of Performance Issues & Disruption Events
• Integration with Spend Analysis Tools
• Reporting of Key Supplier Operational and/or Financial Risks
• Web-Based Portal for Supplier Self-Registration & Information Maintenance
• Insurance Solutions