Supply Chain Risk Requires a Resilient Enterprise

We’ve all heard the adage “nothing is certain except for death and taxes.” In the business world, Jeff Thomson (@IMA_JeffThomson), President and CEO of the Institute of Management Accountants (IMA), believes you can add supply chain risk to that list. He explains, “All companies, regardless of size, face a myriad of risk in today’s global business and economic climate — from cyber risk to natural disaster preparedness to supply chain disruption. When risk is inevitable, a company’s response to it becomes critical.”[1] What kinds of risks are today’s companies facing? Leonie Barrie reports a forecast from the British Standards Institution (BSI) notes, “Risks ranging from cargo theft to terrorism incidents remain among the biggest threats to global supply chains in 2017. … The group’s latest annual … Global Supply Chain Intelligence report notes that last year there were multiple incidents that started out as a security, social responsibility, or a business continuity risk that provoked other supply chain issues.”[2]

Taking a Holistic Approach to Supply Chain Risk Management

In today’s interconnected world, it’s rare for an event in one area to have little or no impact in other areas. As Barrie explained above, risks in one area often provoke other supply chain issues. That’s why a holistic approach to supply chain risk management is essential. For example, in the area of regulatory management, Christopher T. McClure, Rebecca K. Neary, and Meghan K. Rzepczynski, analysts from Crowe Horwath, insist, “It’s common for departments to operate independently.”[3] They add, “Many companies could benefit from taking a step back and evaluating a centralized and holistic approach to supply chain regulatory management. … The first step in creating a holistic supply chain program is to develop a comprehensive view of the regulatory compliance landscape.” Regulatory management isn’t the only area requiring a holistic approach. The entire range of supply chain risks needs to be considered holistically.

A holistic approach involves both the identification of risks and a plan for dealing with them. Robert Mbonu, a member of the Institute of Risk Management – UK, explains, “An understanding of what risks are is meaningless, if not followed by an even better understanding of how they can impact businesses and be managed. In the world of risk management, Treatment is the word used to describe the actions taken to manage risk. According to its definition, Risk Treatment is the process of selecting and implementing measures to modify risk. Risk treatment measures can include avoiding, accepting, adopting or adapting the risk.”[4] Risks come in a surprising array of guises. Trying to identify all possible risks is a fool’s errand; however, identifying general areas of risk is an imperative. The Resilient Corporation suggests there are ten major categories of Resilient Performance Indicators (RPIs) that every company needs to address. They are: Disaster management; ecosystem; financial stability; human capital; information security; legal & regulatory; public relations & media; operational risk; strategy & culture; and supply chain & procurement. In each of those areas, a company would do well to identify potential risks and then ask whether such risks can be avoided, accepted, require new procedures to be adopted, or whether old procedures need to be adapted. Mbonu explains:

“Management or treatment options for risks expected to have positive outcome include:
• expanding or continuing an activity likely to create or maintain this positive outcome;

• modifying the likelihood of the risk, to increase possible beneficial outcomes;

• trying to manipulate possible consequences, to increase the expected gains;

Management options for risks having negative outcomes look similar to those for risks with positive ones, although their interpretation and implications are completely different. Such options or alternatives might be:

• to terminate the risk by deciding to stop, postpone, cancel, divert or continue with an activity that may be the cause for that risk;

• to modify the likelihood of the risk trying to reduce or eliminate the likelihood of the negative outcomes.
In general, the cost of managing a risk needs to be compared with the benefits obtained or expected.”

Another way of looking at Mbonu’s advice is to apply, whenever possible, the medical adage “prevention is better than cure.”

Shortening and Simplifying Supply Chains

The BSI report makes the observation that risks often change depending on the geographic area in which parts of the supply chain reside. It follows that, when numerous geographic areas are involved in a supply chain, the number of risks that must be faced also increase. Analysts from the Economist Intelligence Unit (EIU) note, “Concerns about geopolitical and economic risks have grown among those who oversee company supply chains.”[5] They continue, “The rules of global trade are shifting and companies will need to make sure their supply chains have the agility and resourcefulness to deal with potential challenges and disruptions that may lie ahead.” When the EIU staff surveyed business leaders about the future of supply chains, they found, “More companies (49%) expect supply chains to become shorter and simpler in the next five years than those (33%) who expect them to grow longer and more complex.” For years, I have been arguing that globalization was going to look more like regionalization in the years ahead. The rise of nationalism across the globe is hastening this trend. One of the reasons I believe regionalization is inevitable is because it shortens supply chains and reduces risks. Although regionalization often reduces complexity, the EIU staff notes, “Some companies that expect to shorten their supply chains may increase their complexity in response to consumer preferences. Shortening and simplifying are seen as ways to reduce the vulnerability of the supply chain to external disruptions, as well as to lower costs and improve effectiveness.”

Jennifer McKevitt (@mckvt) notes, “The past year and a half has shaken the world, with a populist wave threatening a neo-liberal, free-trade oriented standard, and regional politics entering into the foreground. … Risk is everywhere, it is real-time, but often, it is manageable. The ability to suffer disruption, and bounce back, perhaps stronger, is resilience.”[6] She goes to note, “The Economist Intelligence Unit report reveals a few ways global companies expect to build resilience.” They include:

“For one, end-to-end supply chain visibility emerges as a powerful tool to anticipate and quell disruptions when and where they are most likely to occur. Technology is indispensable to this task. Second, internally, is greater communication among previously-siloed departments. Supply chain managers must have conversations with accountants about potential changes to import taxes or tariffs, for example. Lastly, is the need for greater agency over the supply chain, ergo the forecast that value chains will become ‘shorter and simpler.’ But at the end of the day, something will always happen to challenge existing resilience mechanisms. The supply chain manager must then ensure they always have a toolkit, to address the unexpected.”

As McKevitt notes, advanced technologies are critical (or as she puts it, “indispensable”) to making supply chains more resilient.

Leverage Advance Technologies

One of the technologies likely to play a significant role is cognitive computing. Cognitive computing platforms can help break down the information silos that often hinder better visibility. They can collect, integrate, and analyze both structured and unstructured data. They can deal with many more variables than previous analytics platforms, which means they can help in the simplification process. Even with shortened supply chains, the emergence of the Internet of Things (IoT) means there is going to be a lot more data to be analyzed. Cognitive computing platforms are up to the task. They can help ensure all that data is turned into actionable insights. In some cases, they can even initiate actions autonomously to ensure companies don’t get blindsided by an emerging crisis. As Jim O’Donnell (@jimodonnelltt) explains, “Supply chain risks can be very disruptive for a company, but technologies like IoT, big data analytics, machine learning and AI can help uncover and mitigate them. … Discovering and mitigating these supply chain risks should be on the mind of every company.”[7] Padmini Ranganathan, SAP’s Ariba vice president of products and innovation, told O’Donnell there are two steps companies can take to help reduce risks:

“The first step to rooting out supply chain risks is to resolve data quality issues and consolidate the data that can help determine risks, Ranganathan explained. The second step is to introduce organizational structures that create transparency and simplicity that enable employees to take the right steps when supply chain risks are suspected or discovered. … Technology is a very powerful tool that can bring the two elements together, Ranganathan said. This includes big data and analytics with tremendous capacity to match patterns, and machine learning, which can uncover troubling information about a company that could lead to supply chain risks.”

In other words, cognitive computing can help foster the “prevention is better than cure” approach recommended by Mbonu.

Summary

Companies want to be resilient when it comes to dealing with supply chain risks. Resiliency means they won’t be knocked about by every blow emerging risks throw at them. Advanced technologies, like the Internet of Things and cognitive computing, can help companies become more resilient. James Edward Johnson, director of global supply chain risk management and analytics for The Nielsen Company, told O’Donnell, “Supply chain risks involve issues that go far beyond visibility into where your product is, or even company reputation. … Risk is about seeing the unseen … and to do this, peripheral vision can be more important than central vision.” The IoT and cognitive computing can provide companies with both improved central vision and enhanced peripheral vision.

Footnotes
[1] Jeff Thomson, “Risk Is Inevitable. Resilience Is Everything,” Forbes, 7 June 2017.
[2] Leonie Barrie, “What are the top threats to global supply chains in 2017?just-style, 23 May 2017.
[3] Christopher T. McClure, Rebecca K. Neary, and Meghan K. Rzepczynski, “A Holistic Approach to Assessing Supply Chain Risk,” IndustryWeek, 8 June 2017.
[4] Robert Mbonu, “Risk Treatment – To Accept, Avoid, Adopt or Adapt,” This Day, 9 June 2017.
[5] Intelligence Unit, “Rebooting supply chains,” The Economist, 2017.
[6] Jennifer McKevitt, “Report: High risk will push supply chains to become shorter, simpler,” Supply Chain Dive, 9 June 2017.
[7] Jim O’Donnell, “Next-gen technology helps mitigate supply chain risks,” TechTarget, 6 June 2017.

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