By Bruce Tompkins, CEO, Tompkins Associates
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What are the top risk management tools and techniques that businesses are employing today? Is your organization prepared for anything, and what are the biggest risks to your supply chain?
At a session held at the Supply Chain Leadership Forum, members of the Supply Chain Consortium discussed their experiences and best practices for risk management. In this podcast, Bruce Tompkins, executive director of the Supply Chain Consortium, interviews Roger Paulson, director of the University of Wisconsin E-Business Consortium’s supply chain management, customer service and sales operations focus areas.
At the forum, Roger delivered a presentation and led a discussion on risk management, with input and participation from the consortium’s members. Bruce and Roger chat live in this podcast from the Supply Chain Leadership Forum, held in Dallas August 31-September 1
Bruce
Well Roger, as always, it’s good to talk to you. Thank you for agreeing to be interviewed here today at the Supply Chain Leadership Forum. We’re here in Dallas, Texas, and wanted to ask you a few questions on risk management since you just led a great session on that topic. So question number one is: Can you give us a sense for some of the key points that you covered in your session on risk management tools and techniques?
Roger
I’d be happy to Bruce, and thank you very much for having me, by the way, at the Leadership Forum. I’ve really enjoyed the session and everything we’ve done so far. Let me give you a little bit of a sense of what we spoke about at the session this morning.
We had a great group. We started off talking about the importance of supply chain risk management, and how the trends like increasing globalization, government regulation, reliance on IT systems, and more recently, recession-related dynamics are increasing the complexity and the uncertainty for enterprises. We then discussed some data and participants’ experiences, which both point to an increase in supply chain disruptions recently.
Then we explored a general framework for approaching risk management. From there we delved into three techniques for assessing and prioritizing risk. We looked at risk plotting, a fairly straightforward technique. We looked at failure mode effects and analysis (FMEA), and we looked at fault tree analysis.
Next we talked about some of the leading practices for getting started with risk management for those companies getting started with the journey, and finally we had a great discussion comparing notes about how organizations in the room are approaching supply chain risk management in their own companies and the techniques that they employ. It was a fantastic and enlightening discussion.
Bruce
Roger you used a great quote in your session, and the quote was, “In supply chain management, the industry has shown that survival of the unexpected is not an accident.” What does that mean to you?
Roger
For me, that really evokes and comes down to the old Boy Scout motto, “Be prepared”? That’s really what it comes down to when I hear that. And then the idea that in many respects, I see the essence of supply chain management is managing a dynamic system. Change and uncertainty are par for the course in this business, and success requires understanding this reality and proactively anticipating it with a well considered strategy. So that’s really what that means for me.
Bruce
Very good Roger, that was really a great answer. In the session, you talk about the most impactful supply chain risks. Can you talk about a few of these that was talked about in the group? And also, get into more detail about some of the things you covered in your session.
Roger
Western Michigan University conducted a study, or rather a survey of manufacturers that I shared with the group. They asked respondents in the survey to rate the supply chain risks that, if they happened, would have the most negative impact on their supply chain performance.
The findings were very interesting. In addition to some perils that I think have always faced supply chain managers, things like natural disasters and logistics interruptions, that have been keeping supply chain leaders awake at night for forever, really are the top risks this time around. The survey was taken last year, so this might not be a surprise, but the top risks that were considered most impactful were recession-related risks. So in fact the top two were supplier insolvency or bankruptcy of a supplier, and the number one most serious or impactful risk to the respondents was supplier inability to perform.
I interpret that to be quality degradation on the part of suppliers who may have pinched pennies themselves during the recession. But there were other risks that were judged to be very impactful that were related to the recession. There were of course swings in customer demand; things related to that were seen as a huge risk. That’s very much a lot of variability when it comes to that through this business cycle. So I think it shows the importance of keeping close, close tabs on your suppliers and even your suppliers’ suppliers.
Bruce
Great Roger, thanks for that. One last question. What kind of responses did you get from the group about the approaches they have taken to supply chain risk, and what obstacles are they encountering as they look at this whole area of risk management?
Roger
The experiences of the companies that were in the room varied significantly. The first, very few said they had an overarching or comprehensive supply chain risk management process in place. Most gave examples that focused on supplier risk which, in the case of the companies in the room, was mostly being left up to the sourcing and purchasing teams to assess and to mitigate. So that seemed to be where the bulk of the companies’ efforts in the room were. A couple of companies had created cross-functional teams to do the supplier assessment.
Usually that meant that they added a finance related member to the team so that they were doing some financial assessment of supplier health as well as some of the more traditional assessments of supplier ability to perform. With regard to the risk management techniques that we discussed, just one of the companies in the room was employing one of these, failure mode effect analysis, and so there wasn’t too much use of the formal techniques that we had spoken about.
One issue that was shared by many of the companies that participated today was how to elevate the importance of managing, and in fact addressing supply chain risk to senior leadership in the organizations and to be able to give it the attention it deserves. That seemed to be a real common challenge. So we closed the session as we began by talking about the elevated importance of supply chain risk in the world we live in today, especially as the business cycle begins to turn, and what I think are a lot more leaner teams in supply chains are going to be forced to remain just as productive, even as we see the level of activity increase as a business starts to ramp back up.
There’s a chance that could really sow the seeds for more supply chain disruptions. I think it’s critical that companies give thought now to how they’re going to be approaching supply chain risk management.
Bruce
Roger, thank you so much for sharing your insights and what you learned in this session. I know everyone who’s listening appreciates that.
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