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Supply Chain Mapping Combined with Risk Assessment

Analyst Insight: In July 2013, Mary Driscoll of APQC had an interesting headline in the Harvard Business Review Blog — "Why are Companies Continually Getting Blind-sided by Risk?" Their risk management survey highlighted that 75 percent of respondents stated they were hit by at least one major supply chain disruption over the past two years. Another key finding: people at the front lines of business were hamstrung by lack of resources for visibility needed to adequately assess their supply chain risk. – Gregory L. Schlegel, Founder, The Supply Chain Risk Management Consortium, and Adjunct Professor, Supply Chain Risk Management, Lehigh University

Supply Chain Mapping Combined with Risk Assessment

The APQC survey also reinforced what our Risk Consortium has been saying for the last three years, which is, many firms have neglected to analyze their growing global supply chains and the discrete risks. Why? Basically because everyone’s supply chain has been lengthened, many have pruned their suppliers to reduce costs and many have secured new suppliers in very risky corners of the world. To mitigate these negative impacts and take a proactive approach to supply chain risk, the Risk Consortium continues to advocate mapping the supply chain and superimposing risk across the new supply chain map.

Favored Mapping Technique—The Risk Consortium advocates the links and nodes approach when designing or modeling a supply chain network. Nodes are the entities within a supply chain, such as suppliers, distributors, customers, other channel members and the company’s facilities as well. Links represent flows and are represented by solid or dotted lines and flows include material, services, funds and information.

• Challenges of Mapping—First and foremost, most global supply chains are very complex with hundreds of tier one suppliers and perhaps thousands of tier two and three suppliers. And by adding the company’s facilities, product portfolio and customer base, the complexity becomes very apparent. Second, many suppliers are not very keen to share their product data with customers and reveal their supply sources. Yet another challenge is determining the right level of maps to develop and how to keep them relevant in a very dynamic supply chain environment.

• Mapping Guidelines—Don’t forget the demand chain. You must include the geographic location information of all sites, i.e., geo-coding. Supplier corporate locations are different than shipping locations. Include more than material flows – factor in costs, revenue and margins. Don’t ignore interrelationships among firms in the supply chain. Secure visibility when possible to sub-tier suppliers and entities. And when completed, we advocate superimposing risk assessments across all the nodes and links culminating in a network map, with all the elements above, including a Red, Yellow and Green risk profile across the entire network.

We expect that more companies will be advocating supply chain mapping integrated with risk assessment, especially by the insurance organizations who are extremely aware of the negative financial impacts of disruptions for their clients.

                                                           The Outlook

With more than 50 percent of manufacturers mentioning a loss of productivity and a loss of shareholder value due to disruptions, and with the SEC looking to enforce the new Conflict Minerals Act in 2014, the Risk Consortium feels supply chain mapping integrated with risk assessments will grow tremendously in an effort to satisfy the track-and-trace requirements of the “3TG” SEC regulation and mitigate risks throughout the entire supply chain.

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