• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • SCB YouTube
  • Login
  • Subscribe
  • Logout
  • My Profile

  • CORONAVIRUS
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Supply Chains in Crisis
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • THINK TANK
  • WEBINARS
    • On-Demand Webinars
    • Upcoming Webinars
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Risk Management: Making the Right Choices

Risk Management: Making the Right Choices

October 29, 2012
Robert J. Bowman, SupplyChainBrain

The statistics are unsettling. Thirty percent of all companies that experience a catastrophic loss fail within the first two years, and another 29 percent go down after that, according to John J. Brown, director of risk management, supply chain and technical development with The Coca-Cola Company. And with supply lines getting longer due to off-shoring and the multiplication of partners, the chances of something going seriously wrong are greater than ever.

So where should the emphasis be - on responsiveness or risk prevention? Brown comes down on the side of the latter. The problem is that most companies don't do a very good job in this difficult area. "We're wired as humans to react and respond, not prevent something from happening," he said on a panel at the annual conference of the Council of Supply Chain Management Professionals in Atlanta. "And company reward structures are the same way."

The question is, reward for what? How does a company quantify the value of something that didn't happen? When all goes well, no one spends a lot of time dwelling on "what-ifs." A good risk manager tends to be a quiet - and unappreciated - hero.

Of course, it's ludicrous to believe that one can stave off all disasters. No one knows when and where the next earthquake or flood will strike. A good risk-management strategy might assign probabilities to various scenarios, but it can't focus too much on any one of them. Nor can it guarantee that every potential threat has been identified. Who prior to 2010 listed "volcano" among the possible events that could disrupt a supply chain?

At CSCMP, Brown laid out the essentials of an effective program. From the start, he said, it needs to be multifaceted. Must-have elements include the capacity for emergency planning and response, incident management and crisis resolution, business-continuity planning and execution, and disaster recovery (especially with regard to IT systems).

Coca-Cola has defined a number of discrete steps in its risk-management effort. First is basic deployment of the process. The company identifies significant risks, analyzes them, devises procedures for mitigating them, and creates a local "risk register." This document, which it maintains for every business unit, group, bottler and corporate entity, tracks the status of risk and corresponding treatment plans at ground level. Brown described it as "your living playbook."

A valuable framework for setting up a workable program is the International Organization for Standardization's 31000:2009 set of guidelines and standards. Accepted worldwide, they provide a good start toward the development of best practices in risk management. "They're pragmatic, easy to use and flexible," said Brown.

In addition, ISO has published Guide 73:2009, a risk-management "vocabulary" which defines basic risk terms and aids companies in taking a uniform approach to the problem.

ISO has documented approximately 30 major risks of which businesses need to be aware, although Coca-Cola's list tops 350. From a high level, however, the picture can be broken down into 11 major categories, according to Anthony J. TenBarge, director of risk management with logistics services provider Genco ATC. They are: those assumed by contract, especially with suppliers; liability, including damage to third parties and copyright issues; professional liability losses, resulting in such errors as missed or lost shipments; environmental, covering the movement of hazardous materials such as lithium batteries; crime and theft; damage to physical property; lost, delayed or damaged cargo; business interruption; trade credit and the chance of not getting paid; political unrest, and risks to employees.

With the task of identification in place, companies should next focus on how to sustain the risk-management process. Coca-Cola employs a three-pronged approach, said Brown. It reviews the risks that are currently being managed, preferably on a monthly basis, and no less frequently than once a quarter. It also identifies new and emerging risks, adding them to the risk register as necessary. Finally, it factors those key risks into the planning process, covering both strategic and annual business plans.

Brown also described Coca-Cola's "bow-tie" process, so-called because of its two-sided nature. On one side are the factors that could cause a risk event to occur. On the other are its consequences. Then the company delves into what must be done to prevent a particular crisis from happening, or at least to mitigate its effects.

Finally - and this should go without saying - every organization needs to appoint a skilled risk manager. This highly placed individual, said Brown, must understand all aspects of operations, from human resources to contracts, finance and data management.

Companies like Cisco Systems, Inc. have devised their own sophisticated, hour-by-hour schemes for coping with disasters such as the devastating earthquake and tsunami that struck Japan in March of 2011. Cisco, too, utilized a "playbook" for dictating action in the wake of that crisis, including the setting up of a "war room" staffed by managers from multiple disciplines. Still, there's only so much that a globally distributed organization can do to react to an event of that scale. Inevitably, supply lines will be affected for a time, saddling the company with huge costs that can turn black ink into red.

Unexpected consequences should be, well, expected. Defining them all, though, is an impossible task. Coca-Cola couldn't have foreseen that Japan's five million soda-vending machines would be seen as "energy wasters" following the meltdown of a major nuclear reactor.

At such times, a company must consider the option of risk transfer. There are two primary ways to achieve it: through contracts with suppliers and other trading partners, and insurance. The latter can take many forms, including protection for cargo, merchandise, workers, facilities, infrastructure and customs issues, said Barbara M. Spain, senior vice president and national logistics manager with Aon Risk Services. There's also trade-disruption insurance, which covers a wide variety of losses.

Still, given the high cost and sometimes limited availability of the right type of insurance, it behooves companies to do a better job of preparing themselves for disasters and disruptions. Quick-response strategies, regardless of the nature of the event, are especially vital to have in place. Regardless of your size, if you're not actively engaged in a program similar to that of Coca-Cola and Cisco, you need to wake up.

Comment on This Article


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

RELATED CONTENT

RELATED VIDEOS

Logistics Global Logistics Sales & Operations Planning Forecasting & Demand Planning Supply Chain Finance & Revenue Management Supply Chain Planning & Optimization Supply Chain Visibility Business Strategy Alignment Global Supply Chain Management HR & Labor Management Quality & Metrics Regulation & Compliance Supply Chain Security & Risk Mgmt Sustainability & Corporate Social Responsibility Consumer Packaged Goods Food & Beverage High-Tech/Electronics Retail
KEYWORDS Business Strategy Alignment consumer packaged goods Food and Beverage Forecasting & Demand Planning Global Logistics Global Supply Chain Management High-Tech/Electronics HR & Labor Management international trade inventory control Logistics Quality & Metrics Regulation & Compliance Retail Sales & Operations Planning SC Finance & Revenue Management SC Planning & Optimization SC Security & Risk Mgmt supply chain Supply Chain Analysis & Consulting supply chain disaster response Supply Chain Management Supply Chain Planning Supply Chain Risk Management Supply Chain Visibility sustainability
  • Related Articles

    Risk Management: Making the Right Choices

    Supply Chain Security & Risk Management: There's Help for the 'Dirty' Work of Dealing with Risk Management

  • Related Directories

    Parsyl

Robert J. Bowman, SupplyChainBrain

Why Higher Wages Alone Won’t Solve the Supply Chain Labor Shortage

More from this author

Wake up to live
“Supply Chains in Crisis”
updates and the latest Supply Chain News!

Subscribe to our Daily Newsletter

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • silicon wafer

    Fate of U.S. Chipmaking Looks More Like Fantasy

    Technology
  • Truckers Protest

    Will Truckers’ Protests Be the Thing That Finally Breaks Supply Chains?

    Logistics
  • digital work

    Could Data Standards Solve the Supply Chain Crisis?

    Logistics
  • gas

    Supply Worries Send Gasoline Prices to Record Highs

    Global Supply Chain Management
  • Mobile App

    Podcast | Companies Are on a Shopping Spree for Supply Chain Software

    Technology

Digital Edition

Scb feb 2022 sm

2022 Supply Chain Management Resource Guide

VIEW THE LATEST ISSUE

Case Studies

  • 3PL Doubles Productivity With Robots to Fulfill Medical Supply Orders

  • E-Commerce Company Cuts Order Fulfillment Time by 40%

  • Fashion Retailer Halves Fulfillment Time With Omichannel Automation

  • Distributor Scales Business by Integrating Warehouse Automaton Software

  • Fast-Growing Fashion Brand Scales E-Commerce Fulfillment With Whiplash

Visit Our Sponsors

Yang Ming Alithya Barcoding
Blue Yonder BNSF Logistics Generix
GEP GIB USA GreyOrange
Here Honeywell Intelligrated Inmar
Keelvar Kinaxis Korber
Liberty SBF Locus Robotics Lucas Systems
Nvidia Old Dominion Parsyl
Redwood Logistics Saddle Creek Logistics Schneider Dedicated
Setlog Holding AG Ship4WD Shipwell
Tecsys TGW Systems Thomson Reuters
Tive Trailer Bridge Vecna Robotics
Whiplash    
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • On-Demand Webinars
    • Upcoming Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2022 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing