Recently, we received a question through a media inquiry that made our entire supply chain team simultaneously turn their heads. The question, though innocuous from the reporter’s perspective, felt somehow both simplistic AND overreaching.
“What is the single most important thing that companies can do to decrease risk in the supply chain?”
When we posed the question to our internal supply chain community, responses amounted to variations of the same incredulous reaction – “You can’t be serious.” For our team (and probably most of you in the supply chain field), a question like this diminishes the increasingly, complex nature of the modern supply chain. With moving parts across departments, oceans, and company lines, a silver bullet for reducing supply chain risk is all but impossible. Trying to narrow supply chain risk reduction down to a singularly most important element is a bit like asking what the most important ingredient in baking a cake is – each ingredient is only effective when used in conjunction with the others.
Unfortunately, the question does demonstrate a fairly common attitude when it comes to mitigating risk. Companies and corporate leaders know it’s necessary, that they want it now but don’t know where to start and oh yeah, it shouldn’t cost anything. Lacking a clue as to where you start and taking into account the limited resources that most companies face today, reducing risk is a daunting undertaking.
That said, if you’re facing pressure to name one thing to place your focus on – ironically, it should be widening your focus. Though that statement reads somewhere between Dr. Seuss and Lewis Carroll in terms of sensibility, the underlying point is that only a multifaceted methodology will give you the best opportunity for mitigating and/or reducing supply chain risk. That is to say, don’t bake your cake with one ingredient – go ahead and use them all.
An integrated planning approach, by definition, coordinates parties, processes, and communications across the length and width of the supply chain. As groups become aligned to plan for and respond to risks quickly, logistics and operations are positively affected because they are able to more accurately buffer against risk.
An important piece (we’ll call it the flour in the cake of reducing supply chain risk) of integrated planning is expecting and preparing for risk through a comprehensive risk management approach. For best results, preheat your oven to 350° F and take the following first steps:
- Develop a formal program for risk management. Consider both likelihood and impact of risk, make accountability clear, and give program leadership visibility.
- Drive visibility upstream to your suppliers and their suppliers. Purchasing organizations should understand the geographic and financial exposures across the value chain. Real partnerships and collaborative ways of working, enabled by real-time systems, make it work.
- Manage inventory across the supply network to buffer against risk. Companies typically develop inventory targets based on supply and demand variation. However, variation measures are not likely to capture acts of nature, union strikes, etc.
- Build risk management into the operating model. Companies are increasingly likely to face supply chain disruption. It shouldn’t come as a surprise, so make it an ongoing discussion and part of the monthly cadence of integrated planning.
No matter how accurate the forecast, there’s an immutable potential for chaos around every corner in the supply chain world. The only way to get ahead of chaos is to expect it and prepare accordingly. When your company is considering supply chain risk reduction practices, take a step back, look at the bigger picture, and bake in room to overcome even the most unexpected disruptions.