Are You Taking Unnecessary Risks with Your Supply Chain?

Are You Taking Unnecessary Risks with Your Supply Chain?

How you manage your exposure to risk will determine your company's success.

The "possibility of loss of injury" is one definition for risk, per the Webster dictionary, but the word risk connotes so much more than simple loss. Some want to avoid it at all costs while others love being called "risk takers." These folks look risk in the eye and laugh, take chances and defy the odds. Or do they?

Aren't we all risk takers by just waking up every day and going about our lives? We are constantly dealing with risk and balancing our tolerance of it; basically, risk is in everything we do. What we wrestle with is the degree of risk we are willing to process.

So let's look at one area in manufacturing where there is always risk, much more tangible and real: your supply chain. The art and science that comprises supply chains are really looking to deal with three areas of concern: cost, revenue and mitigating risk. Risk touches both revenue and cost. It is also more elusive -- how do you measure and control it?

You might take on a strategy to eliminate safety stock in order to reduce costs and free up cash flow, but the risk is that if your forecast is wrong or you cannot produce in time, you will suffer in terms of lost revenues or even having to pay SLAs.

So what steps can you take to put in place the tools that will address your exposure to risk?

Gain greater visibility.

I know this concept is well worn; however, as the old adage goes, you can't fix what you can't observe. The real question becomes, can you observe what is important and manage the deluge of data and information that is available? Risk comes from many angles and extended supply chains have an ever-growing and shifting number of blind spots. Supply chains must be able to "see" as much as possible. Understanding all the elements that comprise the supply chain is a vital step to improving your ability to handle risk.

Understand what you are observing.

Sometimes just seeing something isn't helpful. You need to also understand from where you are observing how your situation is impacting what you observe. There has to be contextual understanding of what you are observing, what you are viewing and how it relates to the environment and other events. Just seeing is not enough; you must be contextually aware of what the events are that you have insight into.

Put in place business triggers.

Simple rules are important to have in place to bring color to what you see. Analyst firm Gartner has started to speak about pattern recognition within your supply chain, but doing so in a real-time manner -- being able to look at events as they are happening, not just looking at historical data, which by its very nature is irrelevant once you leverage it.

Trust your people.

At the end of the day people still remain the greatest tool to manage risk. Armed with better tools, the human element can make better decisions. Technology is not a panacea but allows for the decision makers to be better armed when making decisions. Risk mitigation hinges on how well the human element can manage the process. Ensure that your people are trained, prepared and have the necessary tools to do so.

Practice, practice, practice.

Just like many things in life the more you prepare, the greater the chance you will be able to react quickly, decisively and appropriately when situations arise. Scenario planning will not guarantee that you will cover every possible situation, but having rehearsed and practiced will allow you to be ready when you have to act. Make risk scenario planning a part of your regular activities when managing your supply chain.

Risk will always be with us, whether in our supply chains or in our everyday lives. In our lives we constantly balance the amount of risk we are willing to assume. When it comes to our supply chains we have to apply some of the same rules. The difference is we must be more explicit with regards to the process, systems and people associated with managing this risk.

Guy F. Courtin is director of industry solutions, supply chain, with Progress Software Corp.

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