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Effective Risk Awareness and Mitigation for Better Supply Chains

By Jennifer Norberg | N/A 2011 | 6 | 4

Earlier this month, Mahender Singh, Ph.D., discussed global supply chain risk at Asia Supply Chain & Operations 2011, an event cosponsored by APICS and the Singapore Manufacturers' Federation. His session, MIT's Global SCALE Risk Initiative, was based on results from a study conducted by Bruce Arntzen of the MIT Center for Transportation and Logistics. That name may sound familiar, as APICS members were among the many participants in this worldwide survey.

Supply chain risk mitigation encompasses both preventive measures and response preparedness. The survey investigated global attitudes about risk mitigation and included subjects such as the balance between prevention and response plans at organizations and risk management perspectives among trading partners. Both consumer and supplier countries counted among the 17 nations represented in the sample.

Highlights from the results included the following:

  • Organizations preferred to use supply chain risk resources on preventive measures rather than response preparedness.
  • Respondents with risk management roles especially favored prevention plans.
  • Respondents believed that prevention planning measures are best controlled at headquarters; while response preparedness is best undertaken by local units.
  • When analyzing risks, organization leaders focused on frequency more than the severity. For example, in risk mitigation planning, an extended loss of electricity would take priority over an earthquake.
  • There was no correlation between the frequency of risk events and a respondent's preference for prevention or response risk mitigation strategies.
  • Risks that most concerned consumer countries include product availability and quality.
  • Risks that most concerned supplier countries include competitors, costs, and cash flows.
  • Respondents believed their businesses were more aligned with their suppliers than the suppliers did.

What does this mean for your organization?
Begin by learning what type of risks affect your suppliers and customer base, and ask yourself: How would these groups rank the risks in terms of severity and frequency? Then, determine if your suppliers favor prevention or response for their risk mitigation plans--and your organization's best course of action. Can your company and your suppliers improve the alignment of these strategies?

Determine who controls supply chain risk management: Is it headquarters or local entities? For example, if a situation arises, are your plant managers empowered to make decisions, or will they require directives from headquarters? Finally, develop risk scenarios, and use them in your discussions with suppliers and customers to better understand their own approaches.

One scenario Singh presented to conference attendees was the ongoing impact of the earthquake and tsunami in Japan. In addition to the primary effects on operations due to employee losses, damaged facilities, and disabled communication channels, there are the secondary impacts of downstream customers no longer receiving supplies. Organizations with business continuity plans may better weather the disruptions, while organizations without active risk management planning practices may struggle to set up other options.

Although natural disasters may not be a high priority for your organization's risk management, it is time to ensure that you are identifying the risks that are relevant. The first step is having deliberate, open, and productive discussions with your suppliers and customers.

To view more of this study's results, visit the APICS research page at apics.org/research.

Jennifer Norberg is APICS manager of research. She may be contacted at apicsresearch@apics.org.



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