Supply Chain Risk Management: Dealing with Complexity

Stephen DeAngelis

February 22, 2016

“The results for Q3 2015 are in on the state of global supply chain risk,” reports Dr. Warwick Knowles, Dun & Bradstreet’s Deputy Chief Economist, “and indicators point to a conflicted global environment that contains both continued uncertainty and emerging optimism. Supply chain risk remains near a record high.”[1] Certainly it comes as no surprise that supply chain risk remains high. As Jane Bird (@UKJaneBird) observes, “Businesses face many hazards — from earthquakes and terrorism to currency gyrations, regulatory compliance difficulties and the fickleness of customers. But experts say that the trend towards longer and more complex supply chains is exacerbating the risks.”[2] Kathryn Higgins adds, “Understanding and managing supply chain risks can be crucial to anticipating future legal challenges and ensuring regulatory compliance.”[3] The bottom line is the combination of man-made and natural risks — coupled with growing complexity — creates a supply chain risk management conundrum that can only be addressed using advanced technologies like cognitive computing. Cognitive computing systems can make sense of more variables than previous analytic systems; hence, as supply chain complexity increases a system that can handle that complexity is also required.

 

Razat Gaurav, executive vice-president and general manager for JDA Software, told Bird, “There are many more areas of exposure today than in the past.” Analysts at Resilient Corporation suggest there are ten major categories of Resilient Performance Indicators (RPIs), with each category containing numerous risks. Those categories are: Disaster management; ecosystem; financial stability; human capital; information security; legal & regulatory; public relations & media; operational risk; strategy & culture; and supply chain & procurement. To learn more about those categories, watch the video contained in my article entitled “Resiliency and Supply Chain Risk Management.” The important thing to note is that those categories can’t be addressed individually (i.e., without regard to other categories), because interrelationships exist. What happens in one area can have a spillover effect in another area. Take, for example, the failure of a bridge in Northern Ontario, Canada, early this year. Alexa Cheater (@Alexa_Cheater), social media & public relations manager at Kinaxis, reports, “The newly built Nipigon River Bridge is a vital part of the Trans-Canada Highway system, the main roadway linking Canada’s east and west coasts.”[4] Unfortunately, it “failed to stand up to the rigors of a cold Canadian winter.” You might be saying, “Big deal. Find a way around the bridge.” That’s the rub. According to Cheater the only away around the bridge is to cross the border from Canada into the United States and then later re-cross back into Canada. As Cheater reports, “The cost to the businesses impacted by this logistics nightmare is mounting.” It takes little imagination to see how an infrastructure issue escalated into an issue involving international regulations and who knows what else.

 

Cheater asks, “Would your supply chain be able to respond and recover quickly and efficiently if potentially hundreds of large shipments failed to reach their destinations on time? Is an unanticipated delay like this part of your supply chain risk plan? If not, perhaps it should be.” One of the challenges is trying to figure out the perturbative effects of disruptions. Since it’s impossible to prepare for every contingency, having in place a supply chain risk management process that includes a cognitive computing system capable of helping calculate perturbative effects would be ideal. Cheater’s bridge example involved only two countries and a single mode of transportation. Add multiple countries and multiple modes of transportation into the mix and you understand how complexity can quickly escalate challenges. Bird notes a few of the global challenges faced by transnational companies. They include: Currency movement and volatility; industrial actions (like port or factory strikes); consumer empowerment (i.e., “they have become more fickle and there is a lot less brand loyalty”); and a tougher regulatory environment. However, French Caldwell, a senior executive with MetricStream, told Bird, “The primary risk is not knowing who you are really doing business with … and whether companies lower down the supply chain have an effective risk program in place and follow rules and regulations. Third party suppliers with poor security standards, for example, can prove to be a weak link in defenses against cyber criminals.”

 

As costly as supply chain disruptions can be, litigation resulting from supply chain risks can be equally costly. Higgins reports, “An annual report from insurance company Zurich and the Business Continuity Institute has found that a majority of businesses lack sufficient understanding of where and why disruptions occur in their supply chains. However, maintaining a clear understanding of supply chain operations and risks is crucial if businesses are to avoid inadvertent compliance failures or litigation threats.” Her point is an important one. End-to-end supply chain visibility is an insufficient business goal. Today’s complex environment requires a new System of Insights layer between a corporation’s Systems of Record and its external data. Fortunately, Enterprise Cognitive Systems are now available that can deal with supply chain complexity and enable these Systems of Insight to improve visibility, execute decisions, integrate data, and support corporate alignment. The situation should only get better as cognitive computing systems mature, advanced tagging systems are implemented, and the Internet of Things becomes the global nervous system that feeds cognitive systems the data they need.

 

“Richard Wilding OBE, professor of supply chain strategy at Cranfield School of Management, points out that for many organizations, competition is no longer just between individual organizations, but between the supply chains they are part of.”[5] Supply chain analyst Lora Cecere (@lcecere) has argued that point for years. “The supply chain IS Business,” she writes, “not a department within a business.”[6] Wilding believes that when a company views its business from a supply chain perspective it can gain differentiated and valuable benefits. “[Thinking that way] actually starts to change the perspective on how you manage things, he stated. “What you are actually doing is creating a network that can deliver value to the end customer.” Additionally, “Wilding holds that the foundation of a robust chain of supply is designing a product predicated on its supply chain. This requires thinking about where materials are being sourced from, the availability of resources and where crucial dependencies in the supply chain lie.” In other words, it requires a robust and full-time supply chain risk management process to be in place.

 

Footnotes
[1] Warwick Knowles, “Report: Global Supply Chain Risk Near All-Time High,” Dun & Bradstreet, 14 December 2015.
[2] Jane Bird, “Complex supply chains spell trouble for companies trying to manage risk,” Financial Times, 25 January 2016.
[3] Kathryn Higgins, “Opaque supply chains can obscure legal risks,” The Global Legal Post, 6 January 2016.
[4] Alexa Cheater, “Can One Broken Bridge Cripple Your Supply Chain?21st Century Supply Chain Blog, 18 January 2016.
[5] “Chain reaction,” Audit & Risk, 4 January 2016.
[6] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.