Executive Briefings

Strategies for Reducing Supply-Chain Risk

Paul Vanderspek, clinical professor at Colorado State University, offers some valuable strategies for alleviating risk association with potential supply disruptions.

A number of factors have contributed to an increase in the risk of a supply disruption, Vanderspek says. Chief among them is the global nature of today's supply chains. In response to that trend, companies have undertaken a variety of business practices - including lean manufacturing, just-in-time delivery and supply-base reductions - that have served to increase risk. The impact of those initiatives include fewer buffer stocks and less ability to respond to sudden and unanticipated change in demand.

A second trend also stems from the globalization of supply chains, characterized by longer shipping distances and lead times, and the heightened complexity of trade. Companies have to account for such factors as currency shifts, political unrest, cultural differences, piracy and natural disasters. Combine that with the growing uncertainty of demand and shrinking of product lifecycles, and the job of matching supply with demand becomes more complex than ever before, Vanderspek says.

Businesses need to profile their risk exposure carefully and in depth. They must determine what can go wrong, the likelihood of any given occurrence and its potential impact. It starts with the "pull-your-head-out-of-the-sand" phase, examining such possible disruptions as labor strikes. Each event should then be assigned a probability of high, medium or low. Finally, companies need to assess the financial impact of any event. "Just answering those three questions can go a long way toward helping to understand risk," Vanderspek says.

Actions to be taken to minimize the impact of a disruption include the formation of a crisis management team, specifying who will lead the effort and the precise chain of command. Companies also must know how they will allocate scarce resources. They should have a full understanding of each product line and the resources attached to it. "You want to avoid infighting when you're dealing with a crisis," says Vanderspek. Other measures to be taken in advance include the formation of a detailed strategy for ensuring the continuity of suppliers and materials in times of crisis.

To view video in its entirety, click here


Keywords: supply chain, supply chain management, international trade, inventory management, inventory control, global logistics, supply chain planning, supply chain crisis management, supply chain risk management

A number of factors have contributed to an increase in the risk of a supply disruption, Vanderspek says. Chief among them is the global nature of today's supply chains. In response to that trend, companies have undertaken a variety of business practices - including lean manufacturing, just-in-time delivery and supply-base reductions - that have served to increase risk. The impact of those initiatives include fewer buffer stocks and less ability to respond to sudden and unanticipated change in demand.

A second trend also stems from the globalization of supply chains, characterized by longer shipping distances and lead times, and the heightened complexity of trade. Companies have to account for such factors as currency shifts, political unrest, cultural differences, piracy and natural disasters. Combine that with the growing uncertainty of demand and shrinking of product lifecycles, and the job of matching supply with demand becomes more complex than ever before, Vanderspek says.

Businesses need to profile their risk exposure carefully and in depth. They must determine what can go wrong, the likelihood of any given occurrence and its potential impact. It starts with the "pull-your-head-out-of-the-sand" phase, examining such possible disruptions as labor strikes. Each event should then be assigned a probability of high, medium or low. Finally, companies need to assess the financial impact of any event. "Just answering those three questions can go a long way toward helping to understand risk," Vanderspek says.

Actions to be taken to minimize the impact of a disruption include the formation of a crisis management team, specifying who will lead the effort and the precise chain of command. Companies also must know how they will allocate scarce resources. They should have a full understanding of each product line and the resources attached to it. "You want to avoid infighting when you're dealing with a crisis," says Vanderspek. Other measures to be taken in advance include the formation of a detailed strategy for ensuring the continuity of suppliers and materials in times of crisis.

To view video in its entirety, click here


Keywords: supply chain, supply chain management, international trade, inventory management, inventory control, global logistics, supply chain planning, supply chain crisis management, supply chain risk management