The Global Supply Chain Needs Risk Management
Growth is flattening. Consumer products companies power revenue improvement primarily through growth in global economies, success in new product introductions and mergers/acquisitions. In the building of a global multi-national company, it is increasingly important to invest in a strong risk management practice. Why? In 2015, the average manufacturing company had three materials incidents affecting financial balance sheet performance. Yet, only 19 percent of companies recently studied see risk practices as important.
Risk management is the multi-faceted preparedness. It can hit at any time. The most common risk issues are a combination of nature, supplier and logistics incidents. Preparedness is essential. In this study, the most important techniques for risk management are supplier financial sensing, supplier visibility, and multi-tier inventory management. As seen in Figure 1, the greatest impacts on risk are natural disasters, logistics/port slowdowns and changes in government policies. None of these can be predicted, but the team can be prepared.
Risk management is easier said than done. Let me share a story. I remember flying out to help a client during Hurricane Sandy. I was able to make the last flight out of Washington before the airport shut down, and was relieved that I did not have to cancel with the client. The large food and beverage client was in the mid-west; and together, we watched TV as the horror unfolded in New York. Hurricane Sandy was fierce. I worried for my friends.
During breakfast the next day, I asked if everything was all right with his operations. He smiled. His manufacturing plants in Connecticut were unscathed. All employees were accounted for and he was relieved. I then asked, “How did your plastic supplier do in Long Beach? And will you be harmed by the shutdown of the flavor and fragrance companies in northern New Jersey?” The smile quickly evaporated from his face. He had not thought about the state of his suppliers. Only one in three companies know the locations of their second and third tier suppliers. The best global supply chains have supplier development organizations that know where all their suppliers are and can rally when an event happens. They spring into action to help suppliers when there is a natural disaster. As the world becomes more global, issues are going to arise. Teams that are good at risk management will have fewer material events, and customer outages.
Risk management is the multi-faceted preparedness. It can hit at any time. The most common risk issues are a combination of nature, supplier and logistics incidents. Preparedness is essential. In this study, the most important techniques for risk management are supplier financial sensing, supplier visibility, and multi-tier inventory management. As seen in Figure 1, the greatest impacts on risk are natural disasters, logistics/port slowdowns and changes in government policies. None of these can be predicted, but the team can be prepared.
Risk management is easier said than done. Let me share a story. I remember flying out to help a client during Hurricane Sandy. I was able to make the last flight out of Washington before the airport shut down, and was relieved that I did not have to cancel with the client. The large food and beverage client was in the mid-west; and together, we watched TV as the horror unfolded in New York. Hurricane Sandy was fierce. I worried for my friends.
During breakfast the next day, I asked if everything was all right with his operations. He smiled. His manufacturing plants in Connecticut were unscathed. All employees were accounted for and he was relieved. I then asked, “How did your plastic supplier do in Long Beach? And will you be harmed by the shutdown of the flavor and fragrance companies in northern New Jersey?” The smile quickly evaporated from his face. He had not thought about the state of his suppliers. Only one in three companies know the locations of their second and third tier suppliers. The best global supply chains have supplier development organizations that know where all their suppliers are and can rally when an event happens. They spring into action to help suppliers when there is a natural disaster. As the world becomes more global, issues are going to arise. Teams that are good at risk management will have fewer material events, and customer outages.