De-risking supply chains in 2023: Just-in-time or just-in-case?

Efforts to build robust supply chains aren't new. Leaders must often contend with disruptions driven by internal value chain failures and market events. The ongoing pandemic, global and regional conflicts, and economic turbulence are only a of the few pervasive supply chain risks impacting critical customer, operational and business metrics.

Supply chain resiliency is central to building a competitive advantage

A Gartner survey revealed that 79% of large organizations “are leaning into risk management in the next two to three years.” A separate survey from Gartner found that 40% of supply chain leaders “believed that improving supply chain visibility and responsiveness would be critical to enabling their organization’s purpose.”

However, being entirely immune to risks isn't an option. But organizations can focus on optimal resource deployment and set realistic performance expectations across the value chain in times of normalcy and crisis.

Organizations face elevated risk due to the following:

• Depending inordinately on select value chain entities, for example, customers, factories, labor groups and suppliers
• Making decisions that rely on distorted data and asymmetric information
• Having gaps in processes, feedback loops, systems, indicators and metrics

A robust risk management framework driven by capable people, rigorous processes and versatile technology develops over time. However, for any framework to succeed, it must grow with the organization’s culture and strategy. In broad terms, there are four steps to building a robust risk management framework:

Step 1: Critically assess and document the problem

Describe supply chain risks in as many ways as possible. Identify vulnerabilities within the system, including those in the value chain, as well as risk drivers and feedback loops. Not every risk may be significant; quantify the probability of risk and the actual effect it can have on the value chain. Good ways to chalk this out: political, economic, social, technological, environmental and legal (PESTEL) analysis and Porter’s 5 Forces — competitive rivalry, supplier power, buyer power, threat of substitution and threat of new entry.

A success story
A coal mining company leveraged improved collaborative forecasting and supply planning
processes, advanced fuel telemetry systems and tank capacity investments to increase
product availability, remove diesel fuel shortages and improve asset use.

Step 2: Use decision rules to identify groups at high risk

After identifying a specific list of significant supply chain risks, design an analytical process to quantify the impact severity on different groups. This step is helpful, particularly when groups suffer various effects and you must prioritize actions. It’s a data-driven process; be mindful of data prerequisites, data quality limitations and the interpretability of key performance indicators (KPIs). Don’t rush to invest in analytical engine automation without vetting the framework. Instead, focus on creating powerful, actionable insights.

Here’s a sample framework to tackle problems in supply and demand risk for raw materials and finished goods:

A success story
An agricultural commodity producer implemented robust processes and analytical frameworks to
mitigate demand and supply risks at a U.S.-based plant. Demand/supply attributes, product risk profiles
and root-cause workshops helped identify products for forecast automation, delayed
differentiation and inventory right-sizing, as well as assign production rhythms.

Step 3: Define a list of actions to mitigate risk

Generate a list of actions to be done. Some may be more reactive and short-term, while others will be in the mid-term (3 to 12 months) and still others may be part of the broader strategic program. Define a list of actions with action owners and applicable KPI targets. Frameworks such as plan-source-make-deliver-return/recycle can systematically define focus areas.

A success story
A food manufacturer risked missing production dates and subsequent sales.
Supply chain disruptions and natural events caused a shortage of a critical raw material required
for its flexible film packaging. With only 10 weeks remaining, additional material options were
prequalified for supply mitigation and to provide procurement with a more flexible and
nimble supplier base. It also created bargaining power for future supplier negotiations.

Step 4: Track progress on key risk management actions

Tracking risk is a continuous process. By periodically reviewing progress on important actions, teams can discuss advances and barriers to existing actions, changes in outlying challenges and opportunities to course-correct for greater efficiencies. They can also strategically manage risk. Over time, it’s critical to build versatile systems that proactively manage risk — for example, early warning systems, exception reporting, control towers and machine learning. You can also reap the benefits of an empowered and risk-aware workforce. It promotes honest dialogue and rewards proactive risk management efforts.

A success story
A world-renowned footwear brand developed short- and long-term strategic roadmaps for
transportation strategy, systems, carriers, personnel and infrastructure. It also identified
$20 million in savings through streamlined distribution operations and ordering patterns.

Risk-aware cultures thrive on great people, processes, systems and speed

A final thought for the road ahead
With a robust supply chain risk-management framework, organizations can make outstanding progress in averting, managing and overcoming various levels of risk in a timely fashion.

— By Suraj Vissa