Managing supply chain risk is a bit like managing a company’s financial performance—there is no one solution for it, but rather a thousand different things you do to accomplish it. Taking the analogy a bit further, the CFO is responsible for the financial performance of the firm; but so is almost everyone in the company. So many functions impact the top line and the bottom line.
Similarly, a company may have a central supply chain risk team (though surprisingly few do yet), but almost every operational group in the company impacts supply chain risk in one way or another—from sourcing and procurement and supplier managers, to logistics, inventory managers, product designers, legal/contracts, supply chain planners, insurance/risk manager, IT, security, corporate social responsibility functions, compliance, quality, manufacturing, and more.
It therefore makes sense that the solutions to manage supply chain risk are embedded in the solutions used by these functions. For example, inventory optimization systems are one tool for mitigating disruption risk. Transportation management tools can be used to find the best alternate routes when there is a disruption. Business continuity systems can be extended to help manage suppliers’ business continuity. Product analytic tools used by product designers can be used to check for conflict minerals in your supply chain. Supplier management systems are increasingly used to manage supplier risks.
There are a set of core solutions whose primary purpose is managing supply chain risk. These come from a handful of emerging solution providers who have built systems and services specifically designed to map out multi-tier supply chains, detect and mitigate risks, plan contingencies, monitor for disruptions, and coordinate rapid response. But those companies are still quite small. Some large manufacturers have chosen instead to use consultants (rather than buying software) to do these types of supply chain mapping projects. However, this manual approach does not scale and is especially difficult to maintain over time, since any sizable supply chain evolves every day.
In addition, there are a number of software solutions for managing supplier risk. These tend to focus on tier 1 suppliers, but some are starting to address multi-tier risk as well. We expect some blurring and combining of these various spaces as the market evolves and solution adoption grows.
A centralized supply chain risk group is only part of the answer. Just as financial performance is driven by goals and metrics top down, in the same way supply chain risk management needs to be driven from the executive suite into all of the relevant functions, in order for a company to excel at it.
While there has been plenty of press and commentary about supply chain risk, the market for core supply chain risk management tools has remained small. It is, unfortunately, an incident-driven priority for top management. We expect growth in this sector to continue at a modest pace, perhaps accelerated a bit if/when major disasters, breaches and disruptions hit the headlines this year.