Article:

Supply chain risk management: Companies need to up their game

20 September 2017

In our recent Global Risk Landscape Report supply chain risk was highlighted as an area of real concern for the majority of the 500 business leaders who responded. 

A supply chain disruption can tarnish reputation and could result in lost revenue that costs time, money and resource to rectify.  Good practice embedded in supply chain strategy, operations and risk management will minimise and contain the impact, so that only those in the company will be aware of the disruption.
 

The laws of the supply chain

A supply chain can be considered a system; like any system all the elements are interdependent.  A change in one part of the system creates vulnerabilities and potential risks in other areas. Get things right in relation to supply chain, and supply chain risk management can be a key enabler and source of competitive edge.  However, getting things wrong can have a huge impact.  The 2016 Business Continuity Institute Supply Chain Resilience Report reported that a third of organisations incurred cumulative losses in excess of £1M during the previous year and that 22% of businesses surveyed experienced up to 11 disruptions in a year.  A report published by the World Economic Forum indicated that company value was reduced by 7% as a result of supply chain disruption. 

Supply chains need experts to run them effectively.  Globalisation of trade means that virtually all supply chains have an international element.  This lengthens supply chains which in turn demands more detailed understanding.  This understanding supports risk identification and risk management of the supply chain.   

The supply chain function is an integral part of businesses’ strategic planning and operational outputs.  There are a range of factors to consider when taking new products and services to market.  Considering the supply chain implications of these factors early is essential and should be done in conjunction with the other business areas as part of the plan evolution.  Presenting a fait accompli and expecting the supply chain to make it work is itself fraught with risk.
 

The supply chain: a definition

It is worth defining what we mean by a supply chain.  We consider it be the network of organisations involved, through upstream and downstream linkages, in processes and activities that deliver value in the form of products and services to customers. 

This is achieved by having the right people, processes, procedures and methodologies in place and integrated fully into the culture and structure of the organisation. 

Many people view the supply chain as logistics or procurement, or focused solely on suppliers.  It is these things and much more.  It is also the customers you provide for, it includes your product lifecycle, your relationship management and your risk management function.  Not treating the supply chain as a system creates the potential to miss a key threat to achieving your corporate goals.
 

Where does the risk sit?

The supply chain environment can be considered to exist in four parts; the company, its suppliers, customers and the external environment.  This external environment is likely to cross international boundaries adding further complexity to the situation.

The company operating the supply chain will be able to exert a variable level of control and influence across these areas.  It would be expected that a company would have control of its internal business elements and by extension; the supply chain function.  Outside the company, the level of influence generally diminishes in relation to where revenue flows to and from.  Therefore a company has some influence over its suppliers, less over its customers and virtually none over the external operating environment.
 

Scoping the risk environment?

The risks that emanate from the supply chain can be broadly categorised as those that prevent or disrupt the inward movement of products or services, those that prevent or disrupt the outward movement of products or services or those that prevent effective management of the chain.  The Business Continuity Institute reported that 66% of companies do not have full visibility of their supply chain.

If the supply chain is invisible, risk management is a reactive endeavour that takes longer to resolve, costs more money and causes greater reputational damage.  There are numerous examples of companies that only become aware of a loss of a key component or supplier when the delivery doesn’t arrive.  Knowing where your suppliers are located, knowing which part of your offer is generated by which supplier allows risk management to migrate to a proactive practice. 

The risks that emanate from the supply chain can be identified and managed effectively and economically if the right people are in the right place with the right information at the right time.


What can you do?

To make your supply chain a source of competitive advantage there are things you can do.  First get the qualified and experienced people into your business with experience of supply chain management.  Second, develop a detailed understanding of the risk environment your supply chain creates and incorporate it into your organisational risk management activity.  Third, incorporate supply chain staff into your organisational planning as standard.  Finally, develop effective business continuity planning that will allow you to react swiftly and efficiently to any disruption.