Shelter From The Storm

In today's uncertain environment, companies need to properly assess and take steps to insure against the gamut of risks that threaten their supply chains.

IT'S BEEN SAID you can never be too rich or too thin. The "too thin" part isn't really true about people and it definitely isn't true about supply chains.

As several observers have pointed out recently, it is possible for supply chains to be too lean and if the truth be told, today many of them probably are.

"We've worshipped so much at the altar of lean that for most companies there's no Plan B anymore," says Jeff Karrenbauer, president of Insight Inc., Manassas, VA, which helps companies audit their supply chains. "It's very hard to come up with Plan B in this environment, because having a Plan B implies some level of redundancy.

But we've been so busy cutting every shred of excess that many corporations are now down to the bone."

When does the pursuit of supply chain efficiency become a kind of business anorexia?

When an enterprise loses its resilience.

Resilience is defined as the ability to recover or bounce back from any kind of negative event.

In a recent article on managing supply chain risk, Russ Beverly and Jade Rodysill, senior managers with Accenture's North American Supply Chain Group, advise companies of the need for operational resiliency. "Ongoing business resilience," they say, will become a requirement for high-performance companies, who will be judged as much on their ability to assure future earnings through proactive risk mitigation and management, as they are currently measured on earnings per share.

Why the focus on risk now? The nightly news no doubt plays a role. From the still lingering after-effects of Hurricane Katrina, to the almost daily parade of headlines announcing another huge product recall, to the tragic collapse of the I-35 bridge in Minneapolis, stories of risks not well-dealt-with have been mustering attention.

But it's not just a matter of focus. The risks that most businesses face are growing.

As Beverly, Rodysill and Karrenbauer all point out, today's extended, globalized supply chains expose companies to--more and new kinds--of risk than ever before.

"Worldwide supply chains are inherently more risky because they involve multiple countries with multiple border crossings, multiple currencies and multiple regulatory agencies in each country, not to mention the additional costs inherent in stretching business processes across extended geographies," Karrenbauer points out.
At the same time, faster business cycles afford shorter windows for reaction and recovery.

In this environment, it's crucial for companies to properly assess and take steps to insure against the whole gamut of risks that potentially threaten their supply chains.

From acute threats like natural disasters, terrorist attack, or infrastructure collapse, to the chronic risks that attend any logistics enterprise-forecast error, interruptions in inventory flow, or rising fuel costs, to name a few--all are potential negative occurrences that can be anticipated and planned for.

Aside from the fact that it is simply prudent to be aware of and prepared for any kind of risk, chronic or acute, that could threaten your business, experts say there is considerable likelihood that financial and regulatory pressures may soon force companies to pay more attention to the issue as well.

Sarbanes-Oxley regulations, if they arebroadly interpreted, could very well be interpreted to require that companies outline and quantify various risk exposures as a part of their financial reporting responsibilities, Karrenbauer conjectures.

The recent spate of tainted product recalls may also become the catalyst that leads to new legislation regulating "track and traceability" of product from start to finish through the supply chain. Or the simple risk of litigation could propel more companies to tightening their controls.

Whatever the impetus is, companies need to take real action to assure themselves and their shareholders that they are insuring themselves against supply chain failure and not just financially.

Be Prepared

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