APICS CEO Abe Eshkenazi, CSCP, CPA, CAE -
July 26, 2013
We know things like tsunamis, wildfires, coups, and volcanoes wreak havoc on the world's supply chains. However, a recent American Productivity and Quality Center (APQC) study highlighted on the HBR Blog Network revealed three quarters of almost 200 large companies surveyed faced an unexpected supply chain disruption in the last 24 months.
"Survey responders (mostly supply chain risk operators) said things got so bad that C-suite executives had to get involved in the fix-it process for a sustained period of time," Mary Driscoll writes. What's going on? With all the hype about risk that is circulating among supply chain and operations management professionals, why are disruptions still taking such a large toll?
Driscoll points to the disconnect between the "talk and the walk." Organizational leaders are concerned about risk, but the business managers don't have the visibility or the resources to be successful. "It's likely that the push to protect profits during the recession made matters even more difficult for supply chain operators," Driscoll writes.
The APQC study identifies three major causes of increased risk related to supply chain strategy over the last five years:
- To reduce costs, 70 percent of companies reduced their number of suppliers.
- Furthermore, 74 percent of those surveyed added suppliers that were located at a greater distance from their facilities.
- Of those surveyed, 63 percent acknowledged their suppliers were located in geographies known for high-impact natural disasters, extreme-weather events, or political turmoil.
Additionally, too often, chief executives concentrate on risks related to competitive strategy or the customer experience. Supply chain risks also are critical, and they should be addressed from a strategic level. Take your risk management to the strategic level
Driscoll writes, "the good news in all of this is that nearly half of the survey respondents said that their firms are now adding rigor to the process of assessing supply chain resiliency."
Consider the opening lines from the APICS Supply Chain Risk and Reward Folio: "Risk is a cost. Reward is the actual or anticipated benefit. Not every reward is worth the cost. This is true everywhere, including supply chains. The goal is to reduce or eliminate risks that fail to offer adequate rewards through risk-reward analysis." (This folio is available free to APICS members.)
Now apply this risk and reward logic to the APQC survey results previously outlined. It appears that while companies were trying to gain the reward of reduced costs, leaders and managers lost sight of the true cost of assuming the additional risk. As the APICS Folio and the HBR blog suggest, it's time for organizations to find balance. That balance can only come when supply chain and operations managers communicate and work in step with company decision makers.
APICS offers a variety of risk management education that helps managers gain the knowledge and confidence they need to work with occupants of the C-suite. In conjunction with the APICS Risk Management certificate I highlighted last week, APICS also is offering the Supply Chain Risk Management Seminar, Friday, September 27, 2013, and an APICS 2013 learning path is dedicated to risk and resiliency. Visit apics.org/conference for more information about these programs.
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