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Globalization and outsourcing have combined in recent years to increase supply-chain risk substantially, says Dr. Omera Khan, senior lecturer in logistics and supply chain management at the University of Hull. Local disasters and political turmoil now have a global impact on buyers and suppliers alike. "We're creating challenges and chaos ... and over-complicating our supply chains," she says. "As a result, risk has increased far more quickly than 20 to 30 years ago." Risk has become a critical topic for the boardroom, requiring a formalized approach that reverberates throughout the supply chain.
Outsourcing is a popular means of lowering production costs and shedding non-core competencies, but it should never extend to a loss of control within the buying organization, Khan says. She cites the havoc caused within the supply chain that supports construction of the Boeing 787 "Dreamliner," when supplier failures resulted in serious production delays of that innovative aircraft.
"What's becoming quite evident here is that supply-chain risk management isn't an issue that can be ignored," Khan says. "It needs to be led top-down, and filtered throughout the organization." Senior executives must embed a "supply-chain risk culture" at all levels, making individuals accountable for the effort.
An effective risk-oriented culture will combine the operational perspective, managing day-to-day affairs, with a strategic approach stretching over the next five to 10 years. An effective program will also emphasize the positive side of risk-taking, whereby companies take a chance on investing in new products that might not pay off for several years.
Change doesn't happen overnight, says Khan. It involves more than the hiring of a chief risk officer. Key to any effective effort is the adoption of a demand-driven strategy, coupled with the ability to respond to immediate issues such as the sudden unavailability of critical components. Khan urges companies to work on shortening production lead times, as a means of reducing forecast error and collaborating more closely with customers.
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