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Managing risk has always been an important part of supply chain management. But the increasing complexity and hyper-connectedness of today's global business environment is taking the challenge to a whole new level. In a world where a problem in one isolated region can bring an entire global supply chain to its knees, a business-as-usual approach to supply chain risk simply isn’t good enough. Eliminating all risk is impossible, of course. However, a resilient and agile supply chain can help your organisation to identify and sidestep risks that are avoidable - and bounce back quickly from those that aren’t.
Disruptions have affected the length and breadth of supply chains; from suppliers shutting down, disruptions to production systems, difficulties getting finished product and key raw materials transported, all the way to customer shipments being delayed, disrupted or cancelled entirely.
Managing supply chain risk has therefore become not just a question of using the same old approaches to ensuring products and materials get to the right place at the right time, for many it has become a question of business survival.
A Complete View of Supply Chain Risk
Efforts to identify and mitigate supply chain risk have traditionally focused on operational risks and the usual suspects of potential disruption that businesses have had to deal with in the past.
In an increasingly complex, dynamic and interconnected world a more holistic approach is required which considers and addresses four broadly distinct categories of supply chain risk:
Macro environment risks are broad external forces that originate from sources outside an organisation’s immediate supply chain and may affect entire businesses or the industries in which they operate.
Operational risks, which originate in a company’s core internal process such as manufacturing and distribution.
Extended supply chain risks, which originate from upstream or downstream partners in a company’s supply chain.
Functional risks, which originate in a company’s enabling areas that support supply chain activities such as finance, human resources, information technology, and legal/compliance.
Four Pillars of Resilient Supply Chains
In practical terms, fully eliminating many of these foregoing risks is simply unachievable. Especially when confronting the overwhelming number of ways that things can go wrong with today’s increasing complex and interconnected internal systems and external supply chains.
Companies are turning to ‘risk intelligent’ approaches to help make their supply chains more resilient to the infinite number of risks that may become realities.
In our experience, four capabilities are key:
Visibility is being able to track supply chain events and patterns as they happen – or even before they happen.
Flexibility is being able to adapt quickly in response to problems (or potential opportunities) without significantly increasing operational costs.
Collaboration is the ability to work effectively with supply chain partners (suppliers, customers and logistics service providers) through symbiotic, trust-based relationships in order to avoid disruptions, flex operational capacity, enhance service quality and responsiveness and to achieve common goals.
Control is about having robust policies, monitoring systems and performance management mechanisms to help ensure the proper procedures and processes are followed.
Steps to Building Resilience
A resilient supply chain is an essential element of a Risk Intelligent Organisation. A business that is ‘risk intelligent’ focuses not just on risk avoidance, but also on risk-taking as a means of value creation.
Assessing supply network risks and opportunities and building a more resilient supply chain then involves moving through five key steps which a business should undertake as part of an overall ‘risk intelligent’ approach:
Supply Chain & Procurement
Craig is an experienced leader in both business consulting and general management across a range of asset intensive industries. These include transport and logistics, upstream oil and gas, mining and resources, food processing, and healthcare. Craig offers deep subject matter expertise in business and corporate strategy, supply chain management, IT strategy, fleet asset management, mergers and acquisitions and new venture creation. Craig holds an MBA from Melbourne Business School, an Honours Degree in Engineering, and is a member of the Australian Institute of Company Directors.