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Resilience and Risk

By APICS CEO Abe Eshkenazi, CSCP, CPA, CAE | 0 | 0 | May 16, 2014


What saves us from unavoidable risk? Resilience. At least that’s what Andrew Winston states in his Harvard Business Review blog network post “Why You Need a Resilience Strategy Now.”

Winston, an author and an environmental strategy consultant, suggests that weather and other unpredictable factors have the potential to slow down the entire world economy. “No matter what you believe the cause, extreme weather will play an increasing role in our lives and economies,” he writes. “Nobody can predict exactly what might go wrong, but we can say with near 100 percent confidence that something will.”

In a world that’s “volatile, uncertain, complex, and ambiguous—that’s ‘VUCA’ for short,” there are effective qualities that companies can embrace. Winston outlines the following five core components of resilient systems.

  • Diversity. Having a key part (or service, technology, supplier, or other element) produced in a single place creates a fragile system. Key inputs need to have diverse options for sourcing.
  • Redundancy and buffers. Business systems need flexibility to handle extremes. “The challenge for business specifically is that companies don’t like keeping two of anything—that’s not lean or (seemingly) efficient.” While it is a complex challenge, multiple pathways for key inputs can actually save money and increase revenue.
  • A love-hate relationship with risk. To keep the whole business immune to risk, you should think about taking big risks with small parts of the company. Management guru Clayton Christensen suggests disrupting or wreaking havoc on your own business before your competitor does. Managers can use skunkworks, pilot projects devoted to innovation, to “identify major risks to the business stemming from resource constraints or climate change—and then lean into those risks and come up with products and services that avoid them and challenge the core business.”
  • Fast feedback and failure. Learn to discontinue quickly what isn’t working. This requires reliable data from up and down the value chain.
  • Modular and distributed design. Don’t let one bad part of the system ruin the whole system.

Winston goes on to make the case for renewable energy. Eventually—when the technology allows—companies that produce their own energy will be able to operate better than others that don’t. He also stresses that, because of randomness, nobody can prepare for every possible outcome. “But we can build systems that are better prepared than they are now.”

Maximizing supply chain resilience

Consider the following from the APICS 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. Think of risk-reward analysis as similar to cost-benefit analysis. While risk itself may be unavoidable, there may be choices on the specific risks you have to face based on the design and operation of the supply chain.”

 

We at APICS know risk is prevalent for many supply chain and operations management professionals. In addition to two folios on the subject, APICS is proud to offer the APICS Risk Management Education Certificate, a forward-looking program that will prepare you to participate in the development of a global risk mitigation strategy. By earning this certificate, you demonstrate your commitment to protecting your employer from supply chain risk and your ability to balance rewards and risks in the decision-making process. In this “VUCA” business environment, you can’t afford to ignore risk. Find out more about APICS resources today.

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