The classical approach to supply chain risk management involves assessing the probability and likely impact, in terms of magnitude and duration, of all identified risks facing a company and its suppliers. This analysis is then used to funnel down these risks into those that should be monitored or acted upon. Given the inherent unpredictability of risk events and the complexity of many supplier networks, it is improbable that a company would be able to predict and prepare for all eventualities. Therefore, scenario testing for specific risk events results in a great deal of wasted time, effort and resources for organizations. Given this outcome, companies are slowly realizing the need for a more effective approach.
As a result of this realization, the concept of risk management is increasingly being combined with the concept of resilience, which aims to enhance a company’s dynamic abilities to respond to risk events in ways that minimize impact and potentially enable the organization to capitalize on competitive opportunities. The extent to which companies can bounce back from volatility more quickly and less expensively than others determines whether they can reap the rewards of having the only product on the shelf or becoming a trusted business partner.
A major step towards achieving resilience is through early detection, giving management a head start in responding to issues before they become a crisis. Consultants can help clients get to this next level of maturity by developing their data technology and analytical capabilities to realize near or real-time visibility into end-to-end supply chain activities.
New data technologies such as cloud, managed services and sensor technologies increasingly allow entire systems to be connected—not just supply chains, but also transportation systems, financial markets, electric power grids, social media and even weather patterns. Layering on cutting edge analytical monitoring tools, these connected networks are capable of automatically scanning data and preemptively issuing warnings when a supplier experiences a risk event, giving company leadership much-needed time and flexibility to shift supply or otherwise compensate for supplier issues.
As with early detection, rapid response requires companies to establish clear roles and responsibilities and embedded processes for interpreting risk alerts and communicating that information back to the appropriate decision makers, and governance control structures that drive adherence to defined processes, policies and procedures. Thus, while data technology and analytics make detection easier, companies still grapple with the people, organizational structures and processes to make it useful.
Thus, it is no longer about trying to predict and scenario test around potential risks or even having a flexible supply chain to respond to a one-time crisis. It is about helping clients continuously anticipate and adjust to discontinuities that can impair a company’s core value proposition.
Naima Hoque is a Research Analyst for Strategy & Operations Consulting. To learn more about her latest research title Supply Chain Risk Management Consulting, please click here.