Supply Chain Risk Management
Attended two interesting conference last month. “Next Generation Manufacturing Supply Chain and Digital Economy Research Collaboration” – organized by by Engineering and Physical Sciences Research Council, UK and European Union. Another one was “Supply Chain World – Asia Pacific Conference” organized by Supply Chain Council. Following were the ‘hot’ topics among supply chain practitioners and academicians.
• Supply Chain Risk Management (SCRM)
• Green Supply Chain
• Skill shortage in Supply Chain
The EU Conference was inaugurated with a mind boggling fact thrown at the participants by a professor. According to his research, major supply chain metrics across the world have remained same over last 15 years!!! There may have been an improvement by an individual organization or an industry, but when you take an average of more than 800 organizations across industry & across continents for last 15 years – the numbers do no change. However, the risks today’s supply chains are posed with, have grown by 3-4 times!
Plethora of research is available on Risk Management, supply chain managers are still grappling with how to bring this practice in their day-to-day operations. To say that it’s not done at all, would not be correct. In my opinion, implicit Supply Chain Risk Management practices exist in supply chain operations. Quality checks on manufacturing floor, inventories at various levels in supply chains, use of derivatives in procuring commodity raw materials, forecasting, S&OP – this are all classic examples of such implicit practices. Then why such a huge cry about Supply Chain Risk Management! Below are few reasons for this.
• Many of the above mentioned supply chain processes (and others) are not executed with the end objective of doing Risk Management.
• Although, such supply chain processes may end up doing Risk Management implicitly, they do not mitigate all potential risks supply chains are posed with.
• All SCRM practices come with the cost. There is a need to uniformly carry out risk management across all the supply chain functions with a consistent view of organization’s risk appetite and cost of hedging.
• Risk events affecting supply chain processes may not necessarily happen at an operational level only. Some of the geo-political, natural, man-made risks can challenge strategic direction of the organization. Some of these
events can happen without any precedence. Day-to-day supply chain processes will not be capable of withstanding such events.
• With globalization, CEOs/CFOs have felt the need of having single view of supply chain risk across all products, markets and operations.
I will continue to discuss the need of SCRM in next posts. Below are the 6 essential steps in carrying out SCRM Program at organizational level as defined by Supply Chain Operations Reference Model - SCOR 9.0.
1. Build: Who is the sponsor?
Attain organizational support and executive sponsorship for SCRM Program.
2. Discover: What will the program cover?
Define Pilot & Supply Chains. Set the objectives SCRM program will achieve. Define Project charter, Team members, timelines, interim goals, budget etc.
3. Analyze: What are the risk management goals of your each supply chain?
Look at the existing supply chain from various perspectives through benchmarking, suppliers and customer requirements, competition, business strategy etc. <strong>
4. Assess: Where and how big are the risks?
Identify all potential risks – operational and strategic, repetitive and without precedence, low and high probability/ impact, in suppliers and customers environment. Categorize them into a quadrant of high-low probability vs high-low impact. Arrive at monetized value of each risk component.
5. Mitigate: How the risks will be mitigated?
Define mitigation strategies and costs associated with them for each of the risk events.
6. Sustain: How the risk mitigation strategies will be sustained in day-to-day supply chain operations?
Define processes, process owners, metrics & reports for ongoing SCRM across various functions.
Each of these phases can be an interesting discussion topic in itself. I will try and throw my thoughts on each of them in next posts. Let me have your views/comments.