Global Supply Chain Risk Management

Stephen DeAngelis

May 9, 2016

“Resiliency,” writes Aaron Burman, “has become an overused buzzword. Every field seems to have their own need to talk about being resilient.”[1] Burman may be correct about resiliency being a buzzword, but it can hardly be overused when it comes to supply chain risk management. “So what does resiliency mean from a supply chain perspective?” Burman asks. “And if it’s an overused buzzword, do I need to understand it?” Jonathan Webb (@j_p_webb), Head of Strategy Research at Procurement Leaders, certainly believes supply chain professionals need to understand resiliency. He notes one of the few times supply chain professionals “are visible to the business is when something goes wrong.”[2] That is not exactly the kind of attention one wants to draw to oneself. When something does go wrong, however, how the supply chain reacts becomes a big deal. “Preventing the emergence of unexpected events is impossible,” Webb notes. And Burman adds “The most common definition of resiliency as it pertains to supply chain is how quickly a supply chain can bounce back from a disturbance.” And the more extended your supply (i.e., the more global it becomes) the more likely you are to be impacted by a disruption. Concerning global supply chains, Tony McHarg, AIG’s head of multinational in Asia Pacific, observes, “Today’s supply chains are becoming deeper and spread over more countries. Knowing exactly what, where and how connections can impact a company’s business can be difficult. Many companies do not have a clear understanding of their supply chain risks, nor an enterprise wide approach to managing them. It is not uncommon for companies to have supply chains that go down several layers, beginning with one supplier or distributor which is dependent upon a second, which in turn depends upon a third and so on. A problem at any of these levels has the potential to disrupt a company’s business operations.”[3] For years, analysts have been suggesting end-to-end supply chain visibility is required. I suggest the need goes beyond end-to-end supply chain visibility and requires a new System of Insights layer between a corporation’s Systems of Record and its external data. This Systems of Insight layer, powered by cognitive computing, would be capable of handling the myriad variables that must be taken into account when trying to mitigate the impact of emerging challenges.

Unfortunately, the challenge for supply chain professionals is growing. According to analysts at Source One, “Risk mitigation planning has continued to become a primary focus for supply chain leaders. However, safeguarding operations against potential threats is becoming increasingly difficult, with no signs of it getting easier anytime soon.”[4] Fortunately, Webb notes, “One can put in measures which can mitigate against the impact of disruptions.” As mentioned above, one of these measures is employing a cognitive computing system, like the Enterra Enterprise Cognitive System™ (ECS) — a system that can Sense, Think, Act, and Learn®. Cognitive computing systems can improve visibility, execute decisions integrate data, and support corporate alignment. As they mature, cognitive systems (combined with advanced mathematics) will help transform companies into Digital Enterprises and, by extension, help build what Lora Cecere (@lcecere), founder and CEO of Supply Chain Insights, calls “autonomous supply chains.”[5] A cognitive computing system can also help with a suggestion offered by Burman — looking at supply chain risk management from a new perspective. “Personally,” he writes, “I see it as the intersection of reliability and risk management. Rather than estimate the risks that could happen and the likelihood of their occurrence, as is common in risk management, resiliency is more event agnostic, looking at designing and operating a supply chain that can bend without breaking. Risks can come from a wide variety of external sources that are inherently difficult to quantify — extreme weather, political unrest and supplier performance but also internal processes may lead to incomputable risks, such as a lack of communication between different functional groups.” In an article entitled “Supply Chain Risk Management Requires a Full-time Effort,” I discussed the difference between chronic and situational disruptions to the supply chain. Situational disruptions are major disruptions caused by such things as natural and man-made disasters while chronic disruptions are caused by the risks Burman calls “incomputable risks.” Cognitive computing systems can assist in ensuring there is synergy between operations and risk management. And because cognitive systems can manage a limitless number of variables and provide actionable insights across the enterprise, they can also help with five types of risk identified by Webb:

Price Risk: “The biggest area of price risk exposure for businesses,” he writes, “comes in two forms: inflation and volatility.” Advanced analytics can help detect trends before they become a huge problem.

Quality Risk: “Quality risk management is replete with a range of methodologies that aim to bring a scientific certainty to the vagaries of mass production. Quality assurance processes, such as Six Sigma, provide a helpful guide to automate as much of production as possible and reduce the prospects of human error. They also encourage more lean and efficient processes.” Cognitive computing systems can help optimize production schedules.

Delivery Risk: “There are three ways in which this risk type can impact business: non-delivery, late delivery or early delivery.” Cognitive computing systems can help with delivery risks and potential chargebacks. For more information, read my article entitled “Digital Supply Chain Transformation: Are You Ready?

Legal Risk: “When a supplier does something illegal, organisations can often find themselves liable.” Cognitive computing systems can help enterprises keep track of various international laws and regulations. Webb also recommends “ensuring contracts are robust enough to include provisions to protect the buying company from the most egregious examples of criminality.”

Reputational Risk: “This relates to practices which the general public believe that businesses should be conducting and brands are tarnished when organizations have been viewed to contravene a moral code, if not legal obligation.” It could also result from a quality or performance issue identified by users via social media. Cognitive computing systems can help monitor social media and alert decision makers when a potential problem arises. Webb notes, “Any offence committed by the supplier is generally breezed over and journalists look for the biggest brand name connected to the scandal.”

Burman insists you need to be both proactive and reactive in your efforts to mitigate risk. Proactively you need to “design the supply chain to effectively balance efficiency and redundancy. Reactively, you need to “possess the ability to respond quickly and comprehensively in case of a disturbance.” He concludes, “Like in most everything in life, we’d much rather be proactive than reactive, but when building in resiliency, it is important to understand both approaches.”

Footnotes
[1] Aaron Burman, “Supply Chain Resiliency: Beyond the Buzzwords,” Llamasoft, 3 February 2016.
[2] Jonathan Webb, “What Is Supply Chain Risk? Five Ways To Build Resilience,” Forbes, 26 January 2016.
[3] Tony McHarg, “Managing the Risks of Multinational Supply Chains,” Supply Chain 247, 27 February 2016.
[4] “Global supply chains see growth in operational risks,” The Strategic Sourceror, 25 March 2016.
[5] Lora Cecere, “Tell It Like It Is. What Will Supply Chain 2030 Look Like?” LinkedIn, 13 December 2015.