Supply Chain Risk Management: Keeping Track of the Risks

Stephen DeAngelis

June 16, 2016

“Supply chain practitioners, accustomed to the ongoing disruptions throughout the sub-tier supply chain, are familiar with the usual risks that threaten supply chain continuity: factory fires, port disruptions, force majeure, chemical spills, and so on,” writes Neil Shenoi (@resilient_neil). “But as global supply chains grow more interconnected, seemingly unrelated events can have a ripple effect, branching out and impacting your supply chain.”[1] Shenoi’s “and so on” covers a lot of ground and his assumption that risk managers know everything that falls into that category should worry them. The list of and-so-on risks is growing all the time. Generally, articles about supply chain risk management focus on potential sources of disruption to incoming supplies; but, risk managers can’t afford to overlook risks that could disrupt the output end of the supply either. Needless to say, it’s a big job that can’t be managed manually. Fortunately, cognitive computing systems are up to the task.

 

Cognitive computer systems, like the Enterra® Enterprise Cognitive System™ (ECS) — a system that can Sense, Think, Act, and Learn® — are capable of handling as many variables as you can collect data on. A good cognitive computing system will monitor these variables, discover relationships between them, and alert decision makers whenever a potential risk is detected. They can also help with “what if” scenarios, mitigating perturbations that could result from adverse events, and even make routine decisions to keep the supply chain moving smoothly. And cognitive computing systems can do this 24/7. As potential risks are identified, any data that can be used to alert decision makers to those risks can be added into the mix. Cognitive systems can even identify potential risks on their own as they learn more about your operations and what makes them tick. That’s one reason staff members at Material Handling & Logistics (MH&L) assert mitigating supply chain risk is getting easier. “As companies are being held accountable for supply chain transparency,” they write, “there are resources available to find this type of data.”[2] Finding the data, of course, may be easier than making sense of it. Businesses don’t just need data they need actionable insights.

 

Insight, of course, isn’t free. Jeff Thomson, President and CEO of the Institute of Management Accountants, interviewed Jeff Burchill, Chief Financial Officer at FM Global, and asked him why companies should invest in supply chain risk management.[3] Burchill replied:

“First, supply chains are more complex and distributed than ever. With globalization, business is increasingly conducted in a borderless, more interconnected manner, which results in steady loss of control and lack of visibility into supply chains. As companies seek out lower costs in developing markets, their businesses often become more vulnerable. Second, it’s human nature to take risks until you learn the hard way. Many companies focus too much on making their supply chains lean — wringing out redundancy, hiring lowest-cost labor and keeping inventory low. But such moves can make supply chains brittle. Resilience by comparison isn’t free, but it’s a good investment in the things CFOs care about: business continuity, market share, shareholder value and overall performance. Third, bad things can happen even to the best companies.”

Burchill’s point about brittle supply chains is similar to a point made by Dr. Thomas P.M. Barnett (@thomaspmbarnett). Barnett suggests the opposite of resilience isn’t vulnerability it’s fragility.[4] Fragility and brittleness are obviously not good qualities if one is trying to create a resilient supply chain. And Sissel Waage, Director, Biodiversity and Ecosystem Services, at Business for Social Responsibility, makes a valid point when she asserts, “‘I don’t know’ is becoming less plausible for corporate representatives to say when it comes to understanding various supply chain impacts and risks, from deforestation to water, biodiversity and related human rights issues.”[5] She’s correct. Ignorance is neither bliss nor good business when it comes ensuring a smooth running supply chain. Data and analysis is simply too available in today’s information age. At a minimum, supply chain visibility needs to encompass as much data as possible beginning with a company’s supplier’s supplier and proceeding to a customer’s customer. Risk managers then need to add in potential risks that could affect those processes. As Shenoi noted above, risk managers need to go beyond well-known risks and think a bit out of the box. Carrie Mantey explains, “In today’s day and age, in which outsourcing can be the norm, and not only major global corporations stretch across the globe, but also potentially mid-market and mom-and-pop suppliers, supply chains are no longer insulated from risky external or environmental events. These risks can range from a natural disaster, such as the Japan earthquake and tsunami, to lax safety policies, in the case of the Bangladesh garment factory fires, to the regular ebb and flow of business, including when a supplier is acquired or goes out of business. These risks, in themselves, are not a new problem for supply chain, but as the supply chain grows more complex, so do the risks to supply, especially when visibility is blurred and there is no back-up plan in sight.”[6]

 

In year’s past, corporate executive didn’t necessarily have deforestation, water risk, biodiversity loss, and human rights on their list of risks to their business. That has certainly changed. Shenoi adds a few more risks that may not currently be on the list: leadership/management transition; epidemic/public health issues; and commuter/public transportation disruptions. Nye Longman (@MrNLon) insists that oil prices and terrorism shouldn’t be overlooked.[7] The MH&L staff assert the top seven risks for global supply chains this year will be:[8]

 

1. Global cargo theft cost estimated to grow by a further $1 billion in 2016. Increased concerns in China, Germany, India, Mexico, South Africa, and United States
2. Continued tensions in South China Sea predicted to lead to further protests and disruptions
3. On-going conflict in Syria will continue to impact supply chains. The migrant crisis will continue to lead to port disruptions. European Union/Schengen border controls are predicted to have far-reaching impact.
4. As we’ve already seen this year in Brussels, Belgium, ISIS is predicted to remain a significant threat to disrupt supply chains
5. Labor unrest in China is predicted to persist, as a slowdown in the Chinese economy continues and more jobs move to neighboring countries.
6. Weather disruptions e.g., La Nina phenomenon
7. Global health crises e.g., Zika and Ebola.

 

The point is, both well-known risks and so-called “black swan” risks need to be on the list so that plans can be put in place to prevent or mitigate disruptions associated with those events. Analysts at the Source One note, “Oftentimes, businesses don’t dedicate the necessary time, attention and resources to threat mitigation and emergency response planning until after a disaster has already occurred. And, by this point, it’s a little too late.”[9] I couldn’t agree more.

 

Footnotes
[1] Neil Shenoi, “3 Unobvious Supply Chain Risks Companies Shouldn’t Overlook,” Resilinc Blog, 19 May 2016.
[2] Staff, “Mitigating Supply Chain Risk is Getting Easier,” Material Handling & Logistics, 24 May 2016.
[3] Jeff Thomson, “How To Make Your Supply Chain More Resilient,” Forbes, 11 May 2016.
[4] Thomas P.M. Barnett, “The Opposite of Resiliency Isn’t Vulnerability; It’s Fragility,” Resilient Corporation, 11 April 2016.
[5] Sissel Waage, “Closing the gap between seeing and doing for corporate supply chains,” GreenBiz, 24 May 2016.
[6] Carrie Mantey, “Your Suppliers’ Risk Is Your Risk,” Supply & Demand Chain Executive, 26 May 2016.
[7] Nye Longman, “Global supply chain resilience threatened by oil prices and terrorism,” Supply Chain Digital, 11 May 2016.
[8] Staff, “Cargo Theft was Top Supply Chain Risk in 2015,” Material Handling & Logistics, 28 March 2016.
[9] Staff, “Sensing risk in the supply chain,” The Strategic Sourcerer, 19 April 2016.