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.


Most IT professionals can whip out handsomely bound, comprehensive and detailed plans for back-up and recovery in case of disaster, but supply chain executives typically are not similarly equipped, Karrenbauer notes. Yet their operations are at least as subject to risk.

A study of risk management by Accenture underscores the lopsided equation between risk and preparedness in the supply chain. According to the research, 73 percent of U.S. companies it surveyed had experienced a supply chain disruption in the past five years and half of supply chain managers said they expect risks to their companies to increase over the next three years.

Yet only 17 percent of these executives said their companies understand and manage supply chain risk adequately.

"I know of companies that have effectively war-gamed the loss of every facility they have around the world, so that when something happens they can pull out the associated plan and immediately see what steps to take-beef up capacity here, outsource there, shift volume to an alternative DC," Karrenbauer observes. "But based on my experience, I'd say fewer than 5 percent of companies are doing this."

Whether facing a port closure due to terrorist attack, a load delayed by weather, or a supplier with production problems, the essential component of successful mitigation and recovery when risks materialize is advanced planning, Karrenbauer stresses.

Some companies have formed disaster-response committees and formalized telephone chains to notify the appropriate resources when things go wrong. This response, however, "still boils down to bringing a bunch of people together in a conference room post-incident to discuss, ‘What do we do now?' he notes. "It's still just an ad hoc response after an event. That's not really planning."

You Have To See It Coming

Describing business resiliency Beverly and Rodysill say, "Instead of reactive notification and awareness of disruptions, a resilient supply chain would enable early detection through a 24/7 monitoring and alerting capability."

As several others put it, the key to risk preparedness is visibility.

"Lack of visibility into one's supply chain is a key risk in itself," points out Suresh Bharadwaj, senior principal with the Retail and CPG unit at Infosys Technologies Ltd., Fremont, CA. "A lot is riding on the visibility you have."

Visibility into data and processes affects both an enterprise's capabilities to envision, detect and plan for potential risks and to act effectively once a threat has been identified.

Understanding the importance of accurate risk assessment and preparedness and developing comprehensive, specific plans to prevent, mitigate, and recover from the full range of potential risks, are among the most important jobs of any firm's human capital.

Good information technology can provide powerful assistance in these tasks. It helps managers quantify and prioritize potential risks, detect impending disruptions and respond effectively to minimize negative impacts and recover from them.

One handy form of early warning radar to help companies detect impending risks are performance measurement systems with dashboard interfaces that alert users whenever key performance indicators fall outside defined parameters. Many enterprise and supply chain management suites now come with this feature.

Once situations are recognized, event management systems, which may be built into enterprise software packages or integrated with them, are designed to notify impacted parties of challenge situations and monitor the response and resolution.

Both performance measurement and event management systems provide tools for notifying responsible parties by email, voicemail, or other processes, when indicators require their attention. They may allow supervisors to monitor every other resource that was notified and keep tabs on whatever actions are taken by other associates to remedy the situation, in real time.

Or, systems can be set up to notify one resource and if no action is taken within an allotted time, to cascade the notification up through the organization until proper action has been taken.

Taking advantage of such capabilities to help in assessing and managing risk in the supply chain is a matter of devoting human resources to the tasks of analysis and process development.

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