SUPPLY CHAIN MINDED

Supply Chain Risk Management: Dealing with Length & Depth

Supply Chain Risk Management: Dealing with Length & Depth

CONTRIBUTION BY STEPHEN F. DEANGELIS – FOUNDER, PRESIDENT, & CEO OF ENTERRA SOLUTIONS, LLC

“Risk isn’t a new topic in the supply chain,” writes Hailey Lynne McKeefry (@HaileyMcK), Editor in Chief of EBN, “but it’s one that is moving up the priority list for many electronics companies, as a global reach becomes a reality. Changing weather conditions, evolving labor disputes, and shifts in economic growth all make the risk picture change over time requiring keen attention and careful planning.”[1] The electronics industry is not the only industrial sector that faces growing risks as global supply chains lengthen (see my article entitled “Supply Chains are Adversely Affected by Global Complexity“). Challenges arise not only because of supply chain length (i.e., geographical distances involved) but because of depth (i.e., the number of tiers involved) as well. As a result, Christian Lanng (@christianlanng), CEO of Tradeshift, cautions, “Enterprises need to increase visibility into their own operations and those of their suppliers. They also need to gather a complete risk picture and uncover potential red flags.”[2]

One hears a lot about the importance of increased supply chain visibility; yet, achieving that visibility remains elusive. The reason achieving better supply chain visibility is so difficult is because the weak links in the supply chain often purposefully try to conceal those weaknesses and uncovering them can be challenging. Jonathan Ivelaw-Chapman, CEO of Sedex, believes companies must dig deeper into the supply chain to find those weaknesses. “While the old saying ‘what you don’t know can’t hurt you’ might have applied in the past,” he writes, “when it comes to today’s complex supply chains, knowledge is power.”[3] He elaborates:

[blockquote style=”3″]“When mapping and managing risk within the supply chain, many companies focus on ‘top-down’ approaches, assessing first-tier suppliers’ performance based on their publicly disclosed data. Certainly, engaging with first tier suppliers is a logical first step as it is often where businesses feel they have greatest direct influence. However, a study conducted by Sedex, based on findings from independent audits, clearly shows that non-compliances found at audit which are essentially business risks — increase in number the further down the supply chain you go. At second tier suppliers, audits identify 18 per cent more risk issues than at tier one. The criticality of risk issues also increases further down the supply chain, with third tier suppliers showing, on average, the highest number of critical issues.”[/blockquote]

Better supply chain visibility

Supply analyst Lora Cecere (@lcecere) has insisted for a long time that the minimum objective for better supply chain visibility should be everything from your suppliers’ suppliers to your customers’ customers.[4] A report from the Institute of Risk Management concludes that more than the process of getting resources and products from one place to another needs to be considered. It avers, “Complex ‘extended’ organisations with multi-tiered value chains, networks and numerous third party contracts, require leadership and a focus on relationships and behaviour, rather than the process thinking typically associated with supply chain risk management.”[5] Clearly, that kind of visibility requires an in-depth and proactive supply chain management program that can monitor and analyze many more variables than would seem humanly possible. In fact, it’s not humanly possible; which is why cognitive computing has arrived at just the right moment in history. Because cognitive computing systems can ingest and analyze both structured and unstructured data, and can deal with many more confounding variables than previous systems have been able to handle, companies finally have a chance of achieving the kind of supply chain visibility they have been seeking. Ivelaw-Chapman explains why a proactive approach is necessary:

[blockquote style=”3″]“In today’s globalised world, shifting patterns of trade can quickly create new risk hot spots, and starting to map complex, global supply chains is undoubtedly a huge challenge. Even so, there are already some excellent examples of companies using data from deeper in the supply chain to enable more robust risk management and to build more resilient supply chains. Platforms enabling multi-tiered supply chains to be mapped and data to be shared beyond tier one are also providing valuable aids to tackling this challenge. In addition, due to their collaborative nature these platforms can lead to considerable cost savings compared to developing the necessary resources in-house. While companies that monitor and understand their supply chain data are better placed to quickly identify and mitigate risks, the benefits of taking a multi-tier approach to supply chain management go beyond negating possible issues and saving money. This approach also helps businesses identify positive trends, replicate good practice and build a web of supply chain partners, ultimately helping to achieve long-term profitability and maintain a solid competitive advantage.”[/blockquote]

In addition to being able to deal with more variables, cognitive computing systems are also better equipped to deal with ambiguity than previous analytics platforms. And, according to the Institute of Risk Management study, dealing with ambiguity is important. The report states, “Risk professionals who want to operate successfully need to develop the ability to deal with ambiguity, manage conflict, [and foster] collaborative working and stakeholder engagement. Collaboration between sectors will also help reduce overall supply risks and promote the long-term health of the value chain in that sector.”

Because executives are so bottom-line focused, they often don’t realize (or deliberately ignore) how the bottom line can be adversely affected by supply chain disruptions. As McKeefry states, “Too often, organizations wait until an industry-crippling event occurs to really dig into the question of risk management.” Trust me; that’s too late. McKeefry adds, “By tying incidents back to a real-world revenue impact, supply chain managers can further enforce the importance of proactive risk management to corporate leadership.” In a separate article, McKeefry notes that many companies remain reactive rather than proactive because supply chain risk management looks as daunting as the challenge of eating an elephant. “Managing risk in the supply chain can be a daunting task,” she writes. “Supply chain managers increasingly realize that protecting their supply chains from serious and costly disruptions [is important]. But often they don’t take action, because they are paralyzed by not really knowing how to start.”[6]

In her article, McKeefry includes an infographic from Arkieva entitled “The Anatomy of a What-If” that she believes provides a pretty good overview of many of the things that must be taken into consideration when developing a proactive supply chain risk management process. The introduction to the infographic states, “All supply chain plans deal with the future and, therefore, have significant uncertainty built into them. While it is necessary to improve plan accuracy, it is more important to embrace the uncertainty and incorporate it into the plan.” A good cognitive computing system can help embrace uncertainty in a revolutionary way and ease some of the anxiety that supply chain professionals feel when they contemplate how many things can go wrong as supply chain complexity increases in both length and depth.

Footnotes

[1] Hailey Lynne McKeefry, “Supply Chain Risk Management Step by Step,” EBN, 2 December 2014.
[2] Christian Lanng, “Managing supply chains in a globalised world,” FX-MM, 26 August 2015.
[3] Jonathan Ivelaw-Chapman, “Mapping and managing supply chain risk in a multi-tier world,” Media Planet, 7 September 2015.
[4] Lora Cecere, “Renegade Riposte,” Supply Chain Shaman, 22 February 2015.
[5] “Focusing on process to tackle supply chain risk could be detrimental,” Supply Management, 14 October 2014.
[6] Hailey Lynne McKeefry, “Supply Chain Risk Management Step by Step,” EBN, 5 December 2015.

 

Stephen F. DeAngelis

About Stephen F. DeAngelis

Stephen DeAngelis is a technology and supply chain entrepreneur and patent holder with over 25 years of experience helping to pioneer the application of advanced cognitive computing technologies and applied mathematics to commercial industries and governmental agencies. He is a former Visiting Scientist at the Mathematical and Computational Sciences Directorate and the Center for Advanced Technology at the Oak Ridge National Laboratory and at the Software Engineering Institute (SEI) at Carnegie Mellon University. He was recognized in December 2006, as one of Esquire magazine’s “Best and Brightest” honorees as “The Innovator.” In 2012, Forbes magazine recognized him as one of the “Top Influencers in Big Data.”

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