Managing
Risk
06
October 2020,
Iain C. Steel
In the days following the
fateful lockdown announcement in March 2020, when the Prime
Minister told us all that we must stay at home and that
certain businesses must close, we all saw first-hand how
fragile our supply chains can be.
The news
coverage told endless stories about people queuing for essential
items for hours, only to be faced with row after row of empty
shelves.
While we are
still very much in the grip of the coronavirus pandemic, now
half a year later, we continue to see rolling news coverage of
supply chain fragility, albeit now based on high-demand,
essential front-line items rather than missing toilet paper and
a lack of flower for our banana bread. The coronavirus
pandemic has starkly highlighted our reliance on our extended
supply chains, and the global nature and connectedness of modern
business is more visible than ever before.
With a little
distance and perspective from, at least, the initial stages of
the crisis, it is now perhaps time to assess what we have
learned and what is still to be done.
Supply
Chain Risk
It is clear
that many businesses have had to adapt to a new way of thinking
in relation to their management of supply chain risk. In
some cases, for the first time, businesses are having to think
about the further reaches of their supply chains to assess
whether there is a dependency. It's no longer sufficient
to rely on the goodwill of a key supplier; what about their
suppliers? And so on down the chain.
Against a
backdrop of potential future localised restrictions,
irrespective of geography, do businesses fully understand the
impact, both on their own operations and on the suppliers they
rely upon? To ascertain resilience, this requires a view
of the supply chain that is dynamic and fact-based. Any
review should start with some consideration of your supply chain
to the nth degree. For example;
- If this service/supply were to suddenly stop, is it a
dependency on my future operation?
- How long could my business continue without any
further supply?
- Could I insource? Over what time/cost? Can I do this
without disturbing customer operations/internal operations?
- Does my business rely on a supplier being able to ship
locally / nationally / internationally?
- What is the health of the supply market, locally /
nationally / internationally? What margins do my
suppliers operate within? How long would it be before a
disruption event to a supplier would be a critical
risk to my business?
- Is my supplier dependent on further supply (to the nth
supplier egree)?
- Do I understand the sustainability, carbon footprint, and
ethical nature of the supply?
The answers may lead to some
difficult messages from current suppliers; it is an
unfortunate truth that many may not survive. Of those
that do, they themselves could face disruption or reduced
service in the months and years to come.
Transparency and
Sustainability
Starting to assess the responses
to the above questions is a starting point. However,
effective risk management cannot be a single 'point in time'
exercise. When businesses are considering the risk
against a small group of suppliers, it can perhaps be left in
the hands of a manual process or an Excel spreadsheet.
However, many businesses have suppliers in the tens or even
hundreds of thousands. Managing an increased and
increasing level of visibility across a supply chain becomes a
Herculean task.
It is also the case that
assessing the failure risk of supply is only a single
dimension. For example, consumers increasingly want more
transparency in the products they buy in terms of
sustainability, carbon footprint, and the ethical nature of
the supply. Organisations can no longer bury their heads
on the sand then it comes to the length and breadth of their
supply chain. Consumer demand concentrates the mind -
people are increasingly likely to take their money elsewhere
if the brand values are opaque to them, and this obligation
doesn't stop at the first tier of the supply chain.
Where all this takes us to is an
increased reliance on data. At this time when many
organisations have taken a hit to their bottom line in dealing
with the impact of the pandemic, or in planning for Brexit, it
is a difficult ask for them to increase spending on the
technology to support their buyers. However, many buyers
and planners are going to rely on data to deal with the
current and emerging risks to their supply chains.
Many organisations have methods
to manage their supply chains. Those at the forefront of
these risks are investing now in blockchain supported
transparency and traceability, AI to manage supply volatility
in terms of both price and availability, and often more
traditional technologies to track supply failure metrics
through industry benchmarks, financial assessments and risk
assessments.
However, there is no point in
collecting data if it is not in the hands of the people who
need it to make the buying decisions, to inform risk
management strategy, or to communicate with the
consumer. A new question to ask is not "what are my
risks?", but "where are the gaps in my knowledge?". What
do I know about the nature of these gaps and what are the
indicators when things are heading in the wrong
direction? What do I need to do to bring these tools
together and give my organisation a fighting chance of
managing these risks by investing in the right technology
infrastructure?
Changing Demand
Supply chain risk is not new, is
not limited to the pandemic or Brexit, and is certainly not
going to go away. The very visible nature of some recent
supply chain failures has brought these risks onto the radar
of many consumers, and this, added to the growing demand for
transparency in sustainability, is the tip of the
iceberg. If organisations decide not to invest in
technology to help supplier managers manage and mitigate their
supply chain risks, this could, in itself, be accepting a risk
with a significant cost.
(This
article was first published in the October 2020 edition of
Digital Innovation magazine, pgs. 48-59).
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