Managing Supply chain risk

The other day we were investigating an inventory forecasting tool – we’d invited a solutions company to present and the salesman was showcasing his product – during this he put the spin that this application had other attributes in that it was not just for inventory but could be used generally within the business to help model the business activity over time and help us spot and reduce business risks..

A good point well made we though - risk management within business is often seen as a bit of a dark art and sometimes (incorrectly) overlooked or incorrectly overstated (CEO’s facing on the big headline risks rather than the small ones that can really bite).

Within the world of supply chain risk management is particularly pertinent as the relationship between supply chain and the end customer is tightly bound. Take the example of a stock out – this I’m sure happens in most businesses every week – however this small problem - a failure to supply goods – can not only result in inventory problems or manufacturing delays but can have a direct relationship with lost sales and lost customers. Therefore not only is the challenge identifying the risk but understanding the possible outcomes when that risk is realized.

As we all know, the world of supply chain is complex with many stakeholders and processes – the risks within it are many – for example there are risks associated with suppliers – they may go out of business, there are financial risks – e.g. fluctuating exchange rates – there are “front page” risks such as Geo-Political and there are technical risks such as Obsolescence.

Perversely in recent years we have seen supply chains through leaning activity increase their exposure to some risks – in years gone by we have seen how many organisations have utilised their “fat” as a risk management mechanism – overstocking is a prime example of that. Lean organizations can suffer greatly because they have reduced the buffers that their organisations once – had – this isn’t necessarily a bad thing but as with most business issues one of the key mitigations for risk is having an appropriate strategy – think of project management disciplines – how many businesses have a risk management (and mitigation) strategy.

Going back to our IT sales guy - technology can of course offer some assistance it can help model what if’s and raise awareness but alone it isn’t the answer – risk management takes strategic thinking and management information to ensure that the right decisions are made.

So what does this mean for Supply Chain execs? Well ensuring that there is a level of awareness within the organisation is a must for one - for example – take your supplier profile – are there any small niche suppliers that you rely heavily on? What’s there financial position – how much do they rely on you? What’s your spend by currency? How would a significant change to exchange rates affect you? Overall Risk and Risk Mitigation is something we should all preach – awareness and avoidance – build it into our business culture and constantly monitor it.