Supply Chain Risk Management: When The Greatest Risk Is Outside The Areas Of Traditional Focus

Traditional supply chain management thinking, such as this Deloitte consulting article, focuses on procurement and sourcing strategies. In these times of unprecedented demand and supply volatility, traditional risk management is not relevant. Let's begin the discussion by giving a definition. Wikipedia defines supply chain risk management as "the implementation strategies to manage both ordinary and exceptional risks along a supply chain, based on continuous risk assessments with the goal of reducing vulnerability and ensuring consistency". As we enter 2023 and face the challenges ahead, a more holistic approach is needed. We ask: "Why do we only focus on supply?" Why isn't other areas being assessed? We offer a perspective on the other risks that business leaders face, which is not the main focus of most companies at the beginning of 2023. Tuesday, May 28th 2013. Photo by Steve Christo The greatest risk for a corporation is any practice that does not fall within the scope of traditional supply chain risk management. This includes managing demand-side (commercial operations), flow alignment/design for product portfolios, talent turnover, and the effects of climate shifts. You must look at the whole picture to ensure continuity and reduce variability. Focus on procurement and supplier management practices instead of traditional supply chain risk management. We share here risk factors that should be considered when evaluating 2023 strategies.

Unabated Complexity: Demand-side Risk Factors Companies have believed for the past decade that item proliferation and product personalization were necessary parts of business. Complexity is similar to cholesterol: Good complexity increases profit and growth, while building market share. Bad complexity reduces profitability without contributing to growth. Only 2% of companies today evaluate the link between product proliferation, market share growth, and both. A redesign of the supply chains is necessary to increase the product portfolio in the supply chain. Only 9% of manufacturers are actively involved in designing their supply chains. In this uncertain environment, uncontrolled growth in product complexity is a recipe for bankruptcy. Demand Shifting. Demand shaping is a strategy that companies use to increase their sales. It includes price, promotion, advertising and in-store merchandise. Only 50% of activities are evaluated, and the analysis cycle takes between four to six months. Companies find that 60% of activities are shifting demand, increasing costs and decreasing market potential. It is recommended to simplify demand shaping activities when there is turbulent demand. Also, use newer forms analytics and consumption data to measure effectiveness every week. China's Covid story for 2023 is still unknown. But buckle your seatbelt. China is a major market. Expect wild swings due to market shifts, illness, and policy. You can predict demand using market factors, and you should abandon historical market patterns as a reliable source. Climate Water. Climate Water. The supply chain is at risk from the redefinition the world's water resources as a result of climate shifts. It may be impossible to barge up and down major rivers, or it may not make sense for manufacturing sites that require large amounts of water to relocate. To make the wrong inventories, we are raping the earth. Reduce waste by investing outside-in to synchronize planning processes. This will require a redefining of planning taxonomies. Talent Talent Turnover. First and second-generation pioneers are being said goodbye. The evolution of the supply chain process began in 1980. The generational shifts have led to the retirement of first- and second-generation pioneers. Problem? The problem? Information Technology Budget Integration as a Limiter on Supply Chain Planning. Although tight budget integration in supply chains sounds good, it reduces the life of the supply chain. Why? The budget is only a snapshot of the future. If the supply chain is limited to budget assumptions and does not update the budget based market shifts (which is difficult in large organizations), then the supply chain will struggle to provide reliable supply. The budget should not be a constraint but an input to planning. Integration of planning into enterprise architectures. The goal of today's work is to make imperfect data perfect. Supply chain planning is not a good idea. To shift the focus away from the use planning technologies as a record system, create a collaborative planning environment that allows cross-functional teams and individuals to work together on what-if analyses. In the spirit Eisenhower's "In preparing to battle, I have always found plans are useless but planning is indispensable," planning is not perfect. Planning systems that are not tightly integrated with ERP and back-office systems will prevent planners from performing what-if analysis. This is a simple problem. The problem is simple. No spreadsheet master can accurately model the complex supply and demand variations in a spreadsheet. Due to tight integration, more than 90% of the decisions made during the initial phase of the pandemic were made using spreadsheets. It is time to redefine planning. Only 28% invested in the capability to analyze planning outputs using collaborative workflow using "what-if analysis". Private Equity Investments in Supply Chain Software. Private equity investments in software by PE firms such as Blackstone Group BX, Insight Partners and Thoma Bravo are increasing. They take cash from customer contracts and saddle technology companies with debt while slowing R&D investment and cutting workforces. To protect your assets, get involved on a board level in strategic IT investments. Don't believe the press releases that accompany these acquisitions. The pursuit of shiny objects. 48% of companies today are focused on digital transformation. However, supply chain teams are not sure what that means. The focus is not on building capabilities but technology acquisition. SAP, for example, touts digital transformation as a cloud-ready portfolio that includes automation, predictive analytics, and Internet of Things capabilities. Problem? The problem? SAP teams become self-serving in the process of software evolution. Do not invest to acquire shiny objects. Instead, invest in core capabilities. Ensure that process redefinition is clear during this process. These risk management elements were missing in the supply chain strategy documents of manufacturers, as well as thought leadership content from consultants. This article should help you and your company think more holistically and be more resilient in 2023. Be ready for turbulent times.