Triple-A Supply Chains are agile, adaptable and aligned, as we discussed last week, and that makes them less vulnerable to risks. Triple-A describes what they have become, and not so much how to get there, so let’s look at what you can do to become adept at dealing with an uncertain world. Risk management is a key part of supply chain strategy, and agility and adaptability are the outputs of the planning and preparation process to manage the disruptions that you may encounter. So how do you measure up to your risks?
The first place to start is to identify the risks you may face: Take a look at the Supply Chain Council SCOR Model for classifying risks:
Source: Managing Risk in the Organization Using the SCOR Methodology, Supply Chain Council (2008)
If you are not worried by now, maybe you should be. The key to reducing your worry is planning and preparation. Here is an 8-point plan to help bring you some peace of mind.
Step 1: Analyse your Supplier and Materials Base. Commodity materials available from multiple suppliers are the least risky end of the spectrum. Specialty materials with only one supplier are at the opposite most vulnerable end.
Step 2: Review your Manufacturing Base: Who manufactures your end-product for you, and where. Again, single-sources are going to be of high concern.
Step 3: Identify your Logistics Providers: Look for the points where you move products and materials critical to success through single providers.
Step 4: Prioritise the Likely Risks: For each area above, determine the likelihood of it occurring and assess the vulnerability if the anticipated risk materialises. Highly likely and highly vulnerable will be what you are looking to identify.
Step 5: Quantify the Impact: It is preferable to have a $ sign in front of these. Think in terms of inventory losses, lost output value, lost customer sales.
Step 6: Develop the Contingency Plan: Alternatively known as business continuity planning, this details what you are going to do now, and what you are going to do in the event the risk materializes. Both will have costs associated with them and you need to be able to explain these because your next step is:
Step 7: Prepare the Cost/Benefit Analysis: Effectively this is calculating the cost of insuring your customers against your supply chain risks. Insuring against everything is going to be too costly, leaving too much unplanned for is too risky. This is the point you have to use your best judgement, and going forward learn from experience. The collective knowledge of the organisation is an important resource to help you make these calls.
Step 8: Implement the Measures: Diversify the supplier base, use multiple logistics providers, have alternative manufacturing locations. If this isn’t possible, collaborate with the suppliers to produce their own business continuity plans. Test everyones capabilities, and if you have an in-house action plan developed, train everyone to use it and practice it regularly.
It looks deceptively simple, but there is a lot of work required here. It touches on every process and functional area within your organisation. Although the plans are essential, having associates that are prepared is even more important. The most dangerous risks are those that are unforeseen, and employees who can recognise and react to disruptions are the key to being agile and adaptable.
Are you responsible for developing risk management plans? Please do share your experience in the comments section so all readers can benefit from your knowledge.
About : Rob Ward has extensive global experience working in supply chain organisations. He co-founded Cosmapec to help companies and executive teams establish, develop and optimise their supply chains.