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The Missing Future Risk Management Elements

Analyst Insight: Supply chain risk management is an evolution of business processes, techniques and focus over a multitude of elements. As supply chains have evolved to value chains, so too have the methods for supply chain risk management. Value chain risk management requires a broader integrated strategy, focused on reducing the risk at each point in the value chain, while balancing risk and resiliency. – Mickey North Rizza, BravoSolution

The Missing Future Risk Management Elements

If your supply chain is like the top 1 percent of companies, you can finally check the supply chain risk management box, because you have reduced your exposure to supply chain risk.  You have a mechanism to look at tier-n supplier financials, inventory, logistics, natural catastrophic events, open orders, etc.  You know that you are now prepared and ready for almost any event.  Congratulations!

Of course the true test will be the first disaster that pushes against the plan and processes.  Remember supply chains evolve, ebbing and flowing based on the business needs and requirements.  The same is true for supply chain risk management.

Evolution

Supply chains are a complex machine woven of upstream and downstream businesses focused on transactions that fulfill plan, source, make and deliver.  Somewhere in this mix supply chain risk management practices have evolved for each company within the supply chain.  And, yes, a few companies work together managing their various suppliers in the network to improve their risk management processes.  In a nutshell the supply chain is made up of companies each focused on its own supply chain risk management process, with some focus on a few supplier tier levels.  The supply chain risk management processes encompass multiple sources of supply, inventory, finances, contracts, etc.

Value chains are the new supply chain; smarter, more encompassing and focused on mutually beneficial outcomes.  Applying the same supply chain risk management techniques will give you the same results and may not be mutually beneficial to reap full potential value.  With the evolution from supply chain to value chain is a revolution filled with new risk management techniques.

Valued Techniques

When is the last time you compared your value chain supplier’s financial performance to all parties in the supply chain?  A comparison across the value chain of each company’s operating margin, inventory turns, cash-to-cash cycle times and return on invested capital can be an eye opener.  It can show you the dynamic business aspects of each of the partners’ business, provide you with a gauge of balance vs. resiliency and also uncover vulnerabilities that may need to be addressed.

For instance, the value chain may need more inventory in one area, move to a substitute product or supplier, or select another SKU to minimize the value chain impact of the vulnerability. The point is, using the business financial ratios to compare and contrast overall performance can be a predictive indicator of vulnerabilities.  But it requires stepping it up from a silo or one-off perspective to a value chain and network approach.

                                                    The Outlook

With evolution comes revolution and that time is now to move from supply chain risk management to value chain risk management.  If done right, this shift will result in greater resiliency for the entire value and supply chain.  And individual business will learn how to quickly address the issues by focusing on the entire value chain success vs. only one aspect.

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