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Supply Chain Risk Management Requires a Full-time Effort

Supply Chain Risk Management Requires a Full-time Effort

CONTRIBUTION BY Stephen F. DeAngelis – Founder, President, & CEO of Enterra Solutions, LLC

Last fall the APICS Supply Chain Council released the results of a survey that highlight the ubiquity of chronic supply chain disruption. According the Council, chronic supply chain disruption is “a newly defined and pervasive phenomenon.” [1] The Council defines chronic supply chain disruption as “a persistent disruption that degrades, but does not inhibit, supply chain function and that does not respond to traditional remedies.” The Council claims that it “is an issue that supply chain and operations management professionals need to understand and design supply chains to mitigate against.” In the article, Peter Bolstorff, APICS Supply Chain Council Executive Director, states:

[blockquote style=”1″]Achieving excellence in supply chain and operations management requires the detection and elimination of everything that interferes with optimal efficiency, including chronic disruption.… It is important to recognize both chronic and situational disruption because it enables supply chain and operations management professionals to align supply chain strategy with risk management processes. Being aware of risks brought on by disruption and having appropriate response scenarios helps mitigate or avoid negative impact.[/blockquote]

Chronic disruptions

Admittedly, almost every article I’ve read or written concerning supply chain risk management deals with situational disruption. Chronic disruptions, however, require the same full-time effort to detect and correct and as situational disruptions. The more stretched out the value chain is the more likely it is to experience disruptions — both situational and chronic. According to the APICS SCC article, “The survey discovered chronic disruption is frequently caused by internal issues that are hard to recognize and even more difficult to measure. These causes often include a lack of manpower or trained manpower, a lack of updated information technology, short-term financial pressures and more. The survey also found that while many industries are impacted by chronic disruption, manufacturing was most impacted, 41 percent, followed by health care and pharmaceuticals, 10 percent, and the food and beverage industry, 10 percent.” By its very nature, something that is chronic is refers to something that is persistent or otherwise long-lasting in its effects.

You probably haven’t thought much about chronic operational problems in terms of supply chain risk management; hopefully, that will change. Deloitte asserts that every organization needs to develop a risk intelligent culture (i.e., an organizational culture that looks for potential risks and moves quickly to address them). DeLoitte writes, “Even though many organizations have spent years developing and implementing risk management frameworks, policies, procedures and sophisticated technologies, some of them are still experiencing significant, unexpected problems far more often than they would like. On any given week, a glance at the business headlines offers ample reason for concern. So what’s missing? For many, the infrastructure is in place but the culture is weak. And no matter how good the risk infrastructure, risk management is essentially a people issue, because people take responsibility for managing risk. Smart organizations have developed a culture of risk intelligence to gain the edge.” [2] The important thing to note about the Deloitte recommendation is that a risk intelligent culture can address both chronic and situational challenges.

By making everyone in an organization risk savvy, many of the chronic causes of disruption noted by the APICS SCC survey will be addressed in the natural course of business. This will leave dedicated risk management professionals time to concentrate more fully on potentially disastrous situational disruptions. As noted earlier, economic losses associated with situational disruptions are easier to identify than those associated with chronic disruptions. But any disruption can be bad. Survey results from the Business Continuity Institute indicate that ignoring risks is not a good strategy. [3] BCI analysts explain:

[blockquote style=”1″]Organisations cannot simply bury their heads in the sand and pretend an incident will never happen to them. The survey showed that 76 percent of respondents had experienced at least one supply chain disruption during the previous 12 months, yet a quarter of respondents (28 percent) still had no business continuity (BC) arrangements in place to deal with such an event. Supported by global insurer Zurich, the report concludes that supply chain disruptions are costly and may cause significant damage to an organisation’s reputation.[/blockquote]

The survey indicated that consequences of supply chain disruption include: The loss of productivity (58.5 percent); increased cost of working (47.5 percent); and loss of revenue (44.7 percent). Every company needs to be prepared to mitigate the effects of a major supply chain disruption. Being unprepared could set up a company for complete failure. On the other hand, companies need also be aware of the chronic problems that can cause delays and disruptions. They may not be as catastrophic as situational disruptions, but they can be costly nonetheless. Supply chain risk management should be an all-day, everyday activity for every company with an extended supply chain.

Footnotes

[1] APICS Supply Chain Council, “Chronic Disruption Plagues over 73 Percent of Supply Chain Managers,Digital Journal, 4 November 2014.

[2] DeLoitte, “Five Questions on Cultivating a Risk Intelligent Culture,The Wall Street Journal, 17 September 2013]

[3] Business Continuity Institute, “Number of Businesses Reporting Million-dollar Supply Chain Disruptions Rises,SupplyChainBrain, 6 November 2014.

 

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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