Executive Briefings

Supply Chain Security & Risk Management: Mitigating the Risks of Distributed Demand-Supply Networks

Analyst Insight: Today's supply chain managers operate in a distributed, networked environment, where multi-tier process visibility and effective partner collaboration are critical to success. In order to successfully balance the risks and rewards of this new environment, companies need to have much more transparent and responsive supply chains than in the past.

Although the new trends in supply chain management and the evolution of supply chains into demand-supply networks offer increased opportunities for operational efficiencies, cost savings and better enablement of the company's business strategy and revenue growth, the drawback of distributed networks is in increased risks.

Supply chain risk management has gained significant attention in recent years, after numerous quality, compliance and security-related disruptions had shaken even major companies. However, most companies were still lacking the adequate processes and capabilities to accurately assess and manage both supply and demand network risks.

To add to the supply chain executives' troubles, the risks inherent to distributed networks have been greatly exacerbated lately by the high level of volatility in global markets. In the Supply Chain Executive's Agenda 2009 study, the top reported pressure driving companies to improve SCM in 2009 was economic and financial volatility (40 percent of survey respondents). In addition to this and other top pressures, one-fifth of companies indicated that increasing risks were the reason for improving SCM strategies this year. Considering these trends, it is not surprising that formalized supply chain risk management has become one of the differentiators among the top-performers. In the study, Best-in-Class companies are more than twice as likely as Laggards to have a formalized process for managing supply chain risks (56 percent versus 25 percent, respectively).

The Outlook

Increased attention should be paid in the short term to assessing and managing supplier risks, especially during today's period of economic volatility. In the long run, companies should adopt a holistic approach to managing supply chain risks, weighing the risks, costs and returns of various supply chain business models and strategies. All factors should be taken into account, including supply network, demand network, financial considerations and other factors impacting the business overall. All these factors jointly should help companies pick the right supply chain strategies and solutions.

Although the new trends in supply chain management and the evolution of supply chains into demand-supply networks offer increased opportunities for operational efficiencies, cost savings and better enablement of the company's business strategy and revenue growth, the drawback of distributed networks is in increased risks.

Supply chain risk management has gained significant attention in recent years, after numerous quality, compliance and security-related disruptions had shaken even major companies. However, most companies were still lacking the adequate processes and capabilities to accurately assess and manage both supply and demand network risks.

To add to the supply chain executives' troubles, the risks inherent to distributed networks have been greatly exacerbated lately by the high level of volatility in global markets. In the Supply Chain Executive's Agenda 2009 study, the top reported pressure driving companies to improve SCM in 2009 was economic and financial volatility (40 percent of survey respondents). In addition to this and other top pressures, one-fifth of companies indicated that increasing risks were the reason for improving SCM strategies this year. Considering these trends, it is not surprising that formalized supply chain risk management has become one of the differentiators among the top-performers. In the study, Best-in-Class companies are more than twice as likely as Laggards to have a formalized process for managing supply chain risks (56 percent versus 25 percent, respectively).

The Outlook

Increased attention should be paid in the short term to assessing and managing supplier risks, especially during today's period of economic volatility. In the long run, companies should adopt a holistic approach to managing supply chain risks, weighing the risks, costs and returns of various supply chain business models and strategies. All factors should be taken into account, including supply network, demand network, financial considerations and other factors impacting the business overall. All these factors jointly should help companies pick the right supply chain strategies and solutions.