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FEATURE MITIGATING UNEXPECTED AND SYSTEMATIC RISK

By Gary Neights, senior product manager, Elemica

Supply chains are threatened every day from events related to natural disasters —fires, floods, power outages, contamination, road closures— and socio-economic issues, such as geopolitical upheavels, terrorism and labor unrest. These are examples of unexpected risk events, which tend to occur with little warning, but have a limited duration. Another type of risk is systematic risk. For any given product, factors such as sources of supply, routes, modes of transportation, carriers and contractors provide a unique risk profile. Risk events layer on top of systematic risk and may be more difficult to control or predict. Understanding and assessing systematic risk can be a challenge, especially when hundreds or thousands of products are in scope. But, unexpected risk management systems can associate events as they occur to specific plants, lanes, orders or shipments to help you understand the impact (or non-impact) on your operations. End-to-end visibility, reality checks and risk management let you monitor and adjust your supply chains in real-time. For global supply chains, these tools need to be built on a business network of data from all supply chain participants, including customers, distributors, logistics providers, manufacturers and raw material suppliers. This consolidated data can be reported upon and visualized to allow business leaders and executives to understand what is happening. In addition, Bayesian estimating techniques can be applied to this supply chain data in real-time to predict what will happen and alert the appropriate people to act. And, real-time monitoring can assess world events and apply them to supply chains to help you understand which orders or locations will be impacted and which will not. End-to-end supply chain visibility helps companies recognize what’s working, what’s not, what needs to be tweaked, and what needs to be changed completely. The larger the company, the more likely its business functions are to become isolated in silos. To improve processes and achieve desired outcomes, collaboration and data sharing are critical. Success requires more than analytics and optimization; business-savvy partners drive top performance. A business network helps supply chain leaders prepare for and avoid disruptions by providing visibility to all real-time events. The more tightly knit your community is on the network, the easier it is to avoid or recover from a disaster. Today’s businesses should be sharing risk mitigation strategies and back-up plans with their trading partners to build a true ecosystem that is poised for continuing business, no matter what. 8

Even technology won’t help without communication. “There’s a lot of talk about predictive analytics,” Pelli says. “But if teams aren’t linked up to respond, it doesn’t matter. There has to be a foundation, multiple groups working together, and risk should guide it. Link up efforts within the company—no gaps.” That means you can’t think of natural disasters, but forget about strikes, or child labor, cargo theft or any of the other risk categories out there. Coordination and collaboration, along with visibility, are a must, advises Gary Barraco, director, global product marketing at Amber Road. “Know the risk [that is] coming at you,” he says. “Where are we today? Are there new risks next week? Ask, ‘What are we doing to see risk?’ “From the global supply chain side, folks are realizing the highest risk is in variability,” he adds. “Consumer buying and behavior all feeds into vulnerability of risk. As manufacturing improves, exporters need to know so much. Who’s manufacturing it? Shipping it? Buying it? They have to know about trade sanctions and embargoes.”

COORDINATION & COLLABORATION, ALONG WITH VISIBILITY,

ARE A MUST.

WHAT DO WE KNOW? When it comes to insurance, we don’t know much, Schlegel says. “We—supply chain and operations professionals—don’t know anything about insurance. We run factories, supply chains. Finance people know about it. They buy hazard insurance, but that just mitigates risk to the bottom line. It’s property insurance, not disasters. And neither of these [departments] talk to each other except at quarterly meetings. “These two disciplines in a large manufacturing company are the two most powerful disciplines in the company,” he adds. “Supply chain handles 80 percent to 90 percent of the goods, and finance is driving income. We’ve got to get these two disciplines talking. If they’re sharing information, it can lead to a competitive advantage.” The correct insurance can help mitigate supply chain risk. It can augment anything you do as operations under supply chain risk, so explore what

SUPPLY & DEMAND CHAIN EXECUTIVE | March 2018 | SDCExec.com

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Supply & Demand Chain Executive March 2018  

The only magazine and website covering the entire end-to-end global supply chain in every vertical. It's all done in a solutions-based forma...

Supply & Demand Chain Executive March 2018  

The only magazine and website covering the entire end-to-end global supply chain in every vertical. It's all done in a solutions-based forma...