The Three Pillars of Successful Supply Chain Risk Management
Risk plays a role in every decision that is made by every business – and the supply chain is certainly no exception. Every supplier choice, contract negotiation and procurement transaction involves an unavoidable element of risk.
But just because risk can never be fully eliminated, that doesn’t mean it’s ok to leave it up to chance. Effective supply chain risk management demands continuous attention, careful planning and thoughtful execution.
It’s built on three pillars – each of which plays a fundamental role in helping you mitigate the impacts of unforeseen crisis events, and maintain stable, resilient supply chain operations.
Pillar #1: Commitment
Supply chain risk management isn’t a one-time exercise. Even when you’re responding to a major supply crisis event like the COVID-19 pandemic, simple snapshots of conditions and operations offer limited value when it comes to mitigating risk and safeguarding the supply chain long term.
Instead, it demands a constant commitment at all levels of the procurement organization. But it can’t stop there. Ideally, ongoing risk management needs to be embraced by the wider enterprise too – gathering, interpreting and acting on signals from the multiple departments that touch, monitor or otherwise impact the supply chain.
Embedding and upholding that enterprise-wide commitment to supply risk is a challenge for many organizations, and represents a significant cultural shift for most. You can’t expect people to fundamentally change how they think overnight, but there are a few ways you can support and enable this shift, and give your team the best chance of adapting successfully.
Largely, that enablement hinges on how well you manage, share and operationalize risk-related data. If you want your people to factor risk into their decision-making, you need to equip them with the insight to do that effectively. That means evaluating and applying signals at scale to give everyone a precise view of risk factors and their potential impact on performance.
Pillar #2: Rigor and Discipline
At all times – before, during and after a disaster or risk event – action is essential. But so is organizing that action in a thoughtful and structured manner. It’s critical to ensure that the actions you take are the right ones, or your attempts to re-establish stability could see you descend further into supply chain chaos.
To make the right decisions and take the right actions, you need access to reliable supply chain insights. Again, not just a snapshot of today, but a deep, relevant and accurate view of operations and conditions, maintained and evaluated on an ongoing basis.
By applying rigor and discipline in how you collect, monitor and evaluate supply chain data you’ll always have access to insights you can rely on. And when a crisis strikes, your team won’t need to frantically pull together data to learn what’s going on – accidentally introducing errors in the process. They’ll already know, enabling you to act quickly and appropriately without missing a beat.
Pillar #3: A Probabilistic Mindset
Risk is one of the few reliable constants in business. Managing it is never a question of whether risk is present, but how much risk there is. And when it comes to disruptive crisis events, it’s not if one may happen, but when, and how much it will impact your operations.
Leaders and teams managing supply chain risk need to factor that into their mindset. No decision will ever be truly risk-free. Your job is not to eliminate risk, but to understand its potential impacts and make decisions that minimize it wherever possible.
In a 1999 speech at the University of Pennsylvania, former United States Secretary of the Treasury Robert Rubin summed this approach up succinctly as he distilled his four principles for decision making:
“First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty, we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.”
Managing a global, complex procurement function requires this same weighted and disciplined approach, a concerted effort to minimise the impact when – not if – disaster strikes.
Risk abounds all around us and nothing can diminish that fact. It is only with diligence, critical analysis and planning that we can manage these risks and achieve fluid, profitable movement of goods and services, minimised supply disruption and maximized business continuity.
Take a Deep Dive into the Fundamentals of Supply Chain Risk
Want to learn more about the fundamentals of supply chain risk management and prepare your team for the next big supply chain crisis? Get your copy of Risk and the Supply Chain: Preparing for the Next Global Crisis today and discover expert insights from The Smart Cube’s Omer Abdullah and Subash Chandar.