Do's and Don'ts on Managing Risk in the Supply Chain

Nine tips to help your supply chain operate at peak efficiency.

Do's

Establish closer collaborative relations with distribution channels. Get closer to the demand signal and sense variations continuously. Use sell-through demand (rather than sell-in demand) from sales channels to establish supply needs.

Implement multi-echelon inventory optimization. Segment your product portfolio by demand variability and strategically position inventory at different levels in the supply chain. This will enable companies to use inventory strategically to reduce out-of stocks at the shelf, and helps buffer against supply disruptions at the least total system-wide inventory cost.

Incorporate rapid scenario planning in the S&OP process. Use ranged forecasting to derive a range of possible demand outcomes. Companies can then better manage their assets to meet expected probability of demand given the expected reliability of supply.

Improve supply chain visibility. Synchronize information systems to provide demand and supply visibility, to track events and exceptions in supply chain performance and to monitor leading indicators to try to sense supply chain problems before they occur. Additionally, increase collaboration and communication among both sourcing and selling partners.

Streamline programs with strategic customers. Implement customer program management strategies (e.g., special programs, consignment programs, incentives, aggressive lead times, etc.) with customers that control a relatively large portion of demand. This will ensure that when your customers take measures to spread their risks, you are not significantly impacted.

Don'ts

Stay short-sighted. Avoid becoming overwhelmed by the prospect of balancing risk factors against the cost and benefits of implementing risk-mitigation strategies.

Sacrifice other strategic initiatives. Companies who ignore customer service levels, costs or working capital for the sake of a risk management initiative do so at their own peril.

"Once and done." Analyzing risk management is not a one-time project, but must be continuously evolving to accommodate changing market conditions.

Focus on "operational noise." There's a tendency to focus on sensational risks like product recalls while ignoring smaller risks such as yield busts that can still create friction in the supply chain.

Source: Ramesh Raghunathan, senior director, manufacturing industry, i2 Technologies

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