With the recent oil spill in the Gulf of Mexico, risk management has become a hot topic at both conference tables and water coolers. Aside from this stark reminder, effective risk management strategies are increasingly important in today's marketplace. As supply chains have become leaner and more efficient at reducing waste, the result has been greater risk for supply chain disruption.

Offshore manufacturing, global outsourcing and procurement, variable supply and demand, and multinational regulations are pushing companies to develop risk management strategies that go beyond company doors to include suppliers, customers and the civil public. It should come as no surprise to find that CEOs cite risk mitigation for supply chain management and security as a top priority. According to PricewaterhouseCoopers' 13th Annual Global CEO Survey, CEOs who reported they are extremely or somewhat concerned about supply chain security rose from 33 percent in 2009 to 35 percent in 2010.

Given these concerns, Dow has funded a collaborative project with The Ohio State University to further the science behind the management of supply chain risk. With Dow's assistance, the college's Center for Resilience has delivered diagnostic tools and resources dedicated to the resilience of industrial systems and the environments in which they operate.

Key Factors for Risk Mitigation

Effective risk mitigation strategies must address several key factors. First and foremost are concerns for human health. What are the human health risks along the supply chain? Are "at-risk" communities aware of the risks and prepared to respond in the unlikely event of an emergency? Risk management strategies must also incorporate environmental values to ensure sustainability and minimize carbon footprints for future generations; and governmental regulations are another factor to consider - regulatory baselines should be met, but inconsistent regulations across state and national lines make it necessary for effective risk management to go further. The last key factor to address is cost management: what is the business case for supply chain risk management? How do CEOs and companies mitigate risk without negatively impacting the bottom line? And what organizations should bear or share the cost of risk management?

A Sustainable Approach

To ensure the safety, efficiency and continuity of its supply chain, Dow has developed a comprehensive risk management system that begins with its commitment to sustainability - which the company defines as "remaining focused on the preservation of the environment, along with the health and safety of its products, employees and the communities in which it does business." The key factors of effective risk management are incorporated into Dow's baseline requirements, which include: compliance with transportation safety and security regulations; global implementation of the principles and practices of Responsible Care®  (the chemical industry's voluntary initiative to improve health, safety and environmental performance); development and implementation of uniform supply chain standards, including the use of Most Effective Technology (MET) and Loss Prevention Principles (LPP); and a process for conducting reviews, audits and assessments of Dow and supply chain partner operations. 

Mitigating Transportation Risks

Transportation is a major component of every industry's supply chain, but few industries face the inherent risks found in transporting its products more than the chemicals industry. Dow has partnered with Union Pacific, and many other chemical and rail companies, to help mitigate risks by creating TRANSCAER®, (Transportation Community Awareness and Emergency Response), a voluntary, national organization that provides free safety training for emergency responders and community leaders along U.S. rail routes. With more than 160,000 miles of track in the U.S., TRANSCAER® member companies have pledged to enhance chemical transportation through a variety of innovative solutions and public-private partnerships, from industry-wide railway crossing safety initiatives and designing the next generation of rail tank cars, to global positioning satellite (GPS) sensors that track railcar movements. TRANSCAER® has been so effective that other regions around the world are looking to adopt this model of training.

While transportation poses one risk, supply chain executives across the board say their number one challenge is overwhelming, fragmented data. A 2009 IBM Global Supply study involving 400 supply chain executives in 25 countries found that 70 percent of executives cited lack of standardized processes, insufficient data and inadequate technologies as the chief stumbling blocks preventing effective risk management.

Dow has forged technology partnerships with industry and customers to develop a solution to deal with the risk of fragmented or insufficient data in the transportation sector: the deployment of radio frequency identification and GPS in railcars. These technologies make the supply chain safer and more secure, and improve customer satisfaction by giving customers better visibility to the location and the status of their orders. Moreover, these joint improvements are helping the company's customers to better manage their inventories and supply chain from beginning to end.

Dow expects these risk mitigation efforts to deliver real business results and value, including improving labor efficiencies, data quality, supply chain visibility and reliability, safety and security, as well as regulatory compliance. To date, the company's experience indicates that it can achieve:

• 50-percent improvement in response time to identify and resolve in-transit problems
• 20-percent reduction in excess product/safety stock inventory
• 20-percent container fleet reduction
• Up to 90-percent improvement in reliability of delivery time windows
• Elimination/early detection of product theft
• Elimination of historical 10 to 15 percent human error rate associated with manual data entry

Dow continues to reduce the miles it ships hazardous materials, track rail shipments in-transit and pilot cutting-edge technologies to improve real-time shipment information. It is expanding its commitment to Responsible Care® and TRANSCAER® and continues to build on its relationships with the railroads to address safety and security issues.

Supply chain disruption poses a more serious business risk than in years past. It is simply good business for CEOs and companies to work with customers, suppliers and the public to implement risk management strategies that factor in human health, environmental sustainability, governmental regulations and cost management. The Gulf spill serves as good warning.

Source: The Dow Chemical Company