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Technology's Role - Mitigating Supply Chain Operating Risks

By Richard Sharpe, CEO, Competitive Insights, LLC

Richard Sharpe, CEO, Competitive Insights, LLC

Supply chain disruptions are a given. They are going to happen. And when they do, there are financial consequences. These disruptions create winners and losers. The winners are those companies that have integrated new forms of cloud based “disruptive” technologies along with the adoption of supply chain risk management best practices. They are empowered to quickly and confidently assess and prioritize supply chain risks based on the impact on profitable performance. Companies that embrace these advancements will outperform industry competition. Companies that do not, will be left behind.

For most companies today, the reality of potentially serious supply chain operating disruptions are becoming a major area of concern. The impact can have long-term negative consequences on financial performance; consequences that go beyond just impacting the ability to fulfill customers’ orders. These events can impact your customer’s continued confidence in your operation. Even beyond that, a disruptive event may negatively affect the viewpoints of financial analysts, investors, and corporate stakeholders. In today’s world, supply chain executives must take the identification and mitigation of significant supply chain operating risks to a higher level of management priority.

Need an example? How about the recent havoc created by the bankruptcy of Hanjin? It is difficult to open any business related media outlet and not find another Hanjin related story describing how companies are trying to handle the turmoil caused by this carrier’s operating failure. Was this the first time a shipping company went bankrupt? No. However, consider the significance for all of the impacted companies including those that have goods being shipped in for the Holiday season. Preventable, maybe not. Manageable…definitely, if your business had adopted Supply Chain Risk Management technology and best practices.

"Supply chain risk management activities must be engrained in your company’s ongoing set of business operating practices"

Why are supply chains more vulnerable?

Let me offer three contributing factors:

1. The success of adopting Lean practices. Yes, the widespread adoption of Lean has provided for reduction of waste, increases in efficiencies and lower operating costs. However, it has also eliminated the ability to have alternative choices, if the primary resource of an operation is no longer available.

2. Expansion into new operating regions while also shifting production to lower cost operating areas. Today’s supply chains simply have more moving parts that go beyond the direct span of control of one company; more moving parts, more risk.

3. The volatility of operating in today’s world. Political uncertainties, currency fluctuations, shifts in market demands and social unrest are further factors that can throw a curve ball to any global supply chain operation. Think about how the Arab Spring impacted business throughout the region.

Global supply chains are being pulled like taffy and as we all know, pull taffy long enough and holes will appear.

The Impact of Technology

Where does technology play a role in mitigating supply chain risks? There are several applications that can empower Supply Chain Risk Management capabilities:

1. The first and widest use is in the visualization of a global supply chain using GIS applications. This can range from the display of locations of suppliers by country/region of the world to the mapping of the actual flow of products from origin to final destination taking advantage of “a picture can tell a thousand words”. By adding certain attributes (production details, etc.) to images on the map, additional value can be provided to the user.

2. Applications that provide predictive analytics. This technology can be simulation or network modeling software to evaluate alternatives ways for physical flow of products in order to evaluate the degree of resiliency offered by a change in the setup of the operation.

3. Operating visibility tools such as Control Towers can also help. Their value in addressing operating risks is to visualize and track in almost real time the actual location of products and assets that could be re-directed to a segment of the supply chain that has been disrupted.

In terms of operating disruptions, there remains one key question to the creation of sustainable supply chain risk mitigation strategies. How do you prioritize your time and resources when dealing with a dynamic set of moving variables in your global operation?

The answer: Your company must have a consensus based “measuring stick” to proactively identify, measure and prioritize what risks you will focus on using a consistent and repeatable process. There is no better way to do this than to understand the specific financial impact of each identified risk, e.g. how much it could hurt the bottom line.

Technology now exists that can repeatedly provide the exact profit performance contributions of every asset in a global supply chain operation. With these performance contribution measurements in hand, sources of supply chain operating risks can be systematically identified either as commercial risks, geo-political risks or physical risks. The financial implications can be correlated using these same measurements. These insights can help develop possible mitigation strategies and determine the potential ROI of each potential mitigation strategy. This type of technology is ‘disruptive’ to the traditional methods of supply chain crisis management.

The world is not a stagnant operating environment. Supply chain risk management activities must be ingrained in your company’s ongoing set of business operating practices. Essential to building this type of capability is the inclusion of a new form of disruptive technology; technology that supports supply chain management practices that incorporate precise, indisputable measures of profit.

In Summary

Today’s global supply chains are fragile and the operating resiliency factors to be considered are dynamic. Companies can protect themselves by developing Supply Chain Risk Management programs that are based on precise profit performance contributions. The companies that adopt technologies that provide this type of information will not only survive but will obtain and maintain competitive advantage.

No one wishes for major disruptions, but everyone wants to have the right level of operational resiliency that allows for the maximum generation and protection of profits.

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