PLANNING FOR SUPPLY CHAIN RESILIENCE
Traditionally, supply chain and logistics have been known as tremendous cost-optimizers for companies from around the globe. As a result of globalization, supply chains have extended beyond country borders to find cheaper materials, while also being subjected to consolidation of the supply base to help achieve these cost optimization goals. However, current key market trends are forcing CSCOs and COOs to revisit the objectives and goals of their organization because things have grown more complex in nature. In addition, they are tasked with finding new ways to support emerging business models:
î Agility, sustainability, and visibility in the product fulfillment process is far more important to customers than brand loyalty.
î Personalization of products and services are critical when looking to keep or grow market share. However, this has also resulted in the proliferation of SKUs / offerings.
î Recent pandemics, geo-political instability, trade wars, and more have exposed the vulnerabilities of long and extensive supply chains.
In order to achieve supply chain resilience, it not necessary to roll back all that was achieved in last three decades, all the way back and lose the cost optimization benefits as a result. Instead, it would be possible to simply redefine a risk management process well in advance with a clear list of possible actions / reactions for each potential risk.
Here’s an example of a framework that could be used to manage risk while transforming your supply chain into a growth enabler:
1. Identify Potential Risks
2. Conduct Risk Segmentation
3. Define Risk Treatment
4. Monitor and Improve
With that said, let’s break down each of these framework steps to learn more about this transformation.
Identify Potential Risks
Create an initial list of baseline risks. Though this is mainly a one-time effort, this list should be a living document designed to capture all potential risks. Risk identification should begin with brainstorming sessions that are cross-functional and not limited to supply chain or operations. You should receive key input from commercial and procurement organizations too. Once you have an initial list, it is generally a wise idea to compare notes with some reference works that can help identify if there are any gaps in your initial list of risks.
The objective of creating such a list is two-fold. First, you need to ensure that you have captured all potential risk for analysis and are not caught blind-sighted. Second, once you have the complete list, you can analyze the risk for impact and probability, ultimately allowing you to prioritize all potential business risks that could leave a tremendously negative impact on your operation.
An illustrative list of risks (non-exhaustive):
Terrorism or War
Lawsuits or Regulation
Upstream supply risks
Lack of capacity
Cargo damage or Theft
Lack of IT systems or failure
Labor or personnel availability
Not all risks are equal, and it’s important to remember that they don’t always require the same amount of investment and planning. In order to determine the risks that require a more substantial and significant effort, we want to analyze and segment these risks together.
Conduct Risk Segmentation
After creating a comprehensive list of risks, conduct a systemic segmentation of risk based on the ability to anticipate or predict the occurrence and impact of these risks on business performance or specific service levels.
In order to be able to understand the impact of risk, leverage scenario modeling to help
understand the impact more comprehensively. This exercise will help later on to prioritize the risks as well. This way, the priority is not only defined as per financial metric alone, but also in terms of the impact on social, strategic, and regulatory business considerations.
Once you have all the risks segmented in the 2 X 2 metrics, then you can associate operation and strategic mitigation guidelines for each as referenced below.
Define Risk Treatment
After segmenting the potential risks against impact, the ability to predict is imperative as you start assigning potential treatment strategies based on the likelihood of an event occurring and its permanence or temperance nature. Some risks, by the nature of being temporary, might seek more reactive, short-term fixes, whereas others may require more rigorous proactive planning.
Once the treatment strategies are identified for each segment, it’s time to assign the mitigation strategies for each risk associated within a segment. Below is an example of possible mitigation actions (non-exhaustive) that are pre-identified for each treatment strategy. This strategy cube should be built for each business within a company to align with the business objectives and regulatory requirements.
Supply chain and operational risks continue to evolve with the passing of each day. As supply chains become more and more complex, they also become more critical to business success. Once you have established a robust supply chain risk management process and integrated it with your collaborative planning process, it is important to make continuous improvements towards monitoring and updating risks and mitigation plans on a regular basis.
Monitor and Improve
Once the risk management program is established and implemented, it is highly recommended that you leverage the latest digital twin technologies and scenario planning capabilities to run stress tests and identify room for improvement in your response strategy as defined above.
Over time, as events and risks unfold, you should continuously adjust your risk list in terms of their impact, likelihood matrix, and potential responses based on real-life learning to help improve the Supply Chain Risk Management program.
With an increasing volatile world that is defining the new normal on a consistent basis, the evolving supply chain role toward becoming a growth enabler is clearer. And as a result, supply chain executives are putting supply chain risk management on the agenda. Today’s supply chains are to ensure that they are able to confront and respond to permanently changing customer requirements and increasing geopolitical risks, along with risks associated with changing environmental obligations and regulations – like reduction in CO emissions, reduction in plastics, traceability, etc.
A robust and proactive approach to analyze and respond to these challenges using a culture of risk management will be required to avoid and manage disruptions in the supply chain.