Executive Briefings

The Four Pillars of Supply Chain Risk

Analyst Insight: In 2009, Dr. Robert Trent, Lehigh Supply Chain Management Department Chair, and I began to discuss supply chain risk in terms of how it was negatively impacting companies around the world. This dialogue led to capturing as much information available on the subject, codifying, classifying and developing a framework which became a graduate class in supply chain risk management and ultimately a new book, just launched, entitled Supply Chain Risk Management: An Emerging Discipline. – Gregory L. Schlegel, Founder, The Supply Chain Risk Management Consortium, and Adjunct Professor, Supply Chain Risk Management, Lehigh University

The Four Pillars of Supply Chain Risk

The four pillars of supply chain risk began to take shape during our years of research, classroom and workshop activities along with client engagements, worldwide. As the data began to solidify we formulated a matrix encompassing a level of maturity from zero to 100 and a scale depicting a level of activity, by pillar. Our sneak peek regarding the pillars and a supply chain risk discipline adoption curve is below.

Supply – The complexion of this pillar encompasses areas such as supplier continuity, strategic sourcing, supplier financial viability and capability, material pricing, assessments, fraud, corruption and counterfeiting. Inherent risks are disruptions caused by poor delivery, quality issues, financial failure, non-compliance and communication failure. This pillar has the highest maturity level to date and the largest solutions activity.

• Demand – This pillar covers new customers, market trends, sentiment analysis, demand management, distribution, product integrity, service and scenario planning. Inherent risks are disruptions caused by distribution issues, competitor actions, product reputation, brand management, social media and outbound logistics. This pillar is the second-highest in maturity and maintains the second-largest level of activity.

• Process – This pillar includes IT systems, mergers, marketing strategy, organizational structure, governance frameworks and metrics, supply chain strategy and execution, manufacturing and quality, organizational risk assessments, heat maps and risk war rooms. Inherent risks are disruptions caused by quality issues, inventory shortages, late deliveries, capacity issues, equipment breakdowns, IT outages and misaligned strategies. This pillar is third in maturity level and also third in activity.

• Environmental Landscape – By far the largest in scope, this pillar encompasses government regulations, taxes, economic volatility, currency exchange, natural disasters and compliance. Inherent risks are geopolitical and energy risks, port security, logistics, war, pandemics and civil disobedience. This pillar is by far the lowest in terms of maturity level and activity level.

We expect companies will be embracing the four pillars of supply chain risk management along with many more new solution providers coming online enabling more and more companies to effectively manage supply chain risk within the pillars. In our research for our book, coupled with the pillars, we also developed a Supply Chain-as-a-Discipline Adoption Curve. We classified the company population into Early Adopters, Industry Average and Laggards.

 

The Outlook

From our Discipline Adoption Curve work we came to the conclusion that about 10 percent of companies are early adopters actually exercising good SCRM practices. About 20 percent more are talking about and developing good SCRM practices and the bulk of the company population or 70 percent are reacting to supply chain risks as an ad-hoc, event-driven approach. We have a lot more work to do to help companies effectively identify, assess, mitigate and manage supply chain risk.

The four pillars of supply chain risk began to take shape during our years of research, classroom and workshop activities along with client engagements, worldwide. As the data began to solidify we formulated a matrix encompassing a level of maturity from zero to 100 and a scale depicting a level of activity, by pillar. Our sneak peek regarding the pillars and a supply chain risk discipline adoption curve is below.

Supply – The complexion of this pillar encompasses areas such as supplier continuity, strategic sourcing, supplier financial viability and capability, material pricing, assessments, fraud, corruption and counterfeiting. Inherent risks are disruptions caused by poor delivery, quality issues, financial failure, non-compliance and communication failure. This pillar has the highest maturity level to date and the largest solutions activity.

• Demand – This pillar covers new customers, market trends, sentiment analysis, demand management, distribution, product integrity, service and scenario planning. Inherent risks are disruptions caused by distribution issues, competitor actions, product reputation, brand management, social media and outbound logistics. This pillar is the second-highest in maturity and maintains the second-largest level of activity.

• Process – This pillar includes IT systems, mergers, marketing strategy, organizational structure, governance frameworks and metrics, supply chain strategy and execution, manufacturing and quality, organizational risk assessments, heat maps and risk war rooms. Inherent risks are disruptions caused by quality issues, inventory shortages, late deliveries, capacity issues, equipment breakdowns, IT outages and misaligned strategies. This pillar is third in maturity level and also third in activity.

• Environmental Landscape – By far the largest in scope, this pillar encompasses government regulations, taxes, economic volatility, currency exchange, natural disasters and compliance. Inherent risks are geopolitical and energy risks, port security, logistics, war, pandemics and civil disobedience. This pillar is by far the lowest in terms of maturity level and activity level.

We expect companies will be embracing the four pillars of supply chain risk management along with many more new solution providers coming online enabling more and more companies to effectively manage supply chain risk within the pillars. In our research for our book, coupled with the pillars, we also developed a Supply Chain-as-a-Discipline Adoption Curve. We classified the company population into Early Adopters, Industry Average and Laggards.

 

The Outlook

From our Discipline Adoption Curve work we came to the conclusion that about 10 percent of companies are early adopters actually exercising good SCRM practices. About 20 percent more are talking about and developing good SCRM practices and the bulk of the company population or 70 percent are reacting to supply chain risks as an ad-hoc, event-driven approach. We have a lot more work to do to help companies effectively identify, assess, mitigate and manage supply chain risk.

The Four Pillars of Supply Chain Risk