Supply chain management, like life, is a game of preparation for, protection against, and recovery from risk…
Risk is everywhere. Our reactions to it, however, are what separate the good, the bad, and the ugly, and can align the future playing field. In other words, it’s how proactive you are in risk aversion and even on capitalizing on risk, that defines your company. Deloitte’s recent report: “The ripple effect: How manufacturers and retail executives view the growing challenge of supply chain risk” can give insight to how your company lines up. The report showed results of a survey taken by 600 executives at large and small businesses alike regarding their supply chain risk concerns, along with some words of advice from Deloitte.
One interesting result was the opinions of the most costly outcomes of the supply chain risk. The top two most costly outcomes were said to be margin erosion and physical product flow disruption. Talk about risk! According to the report, “Executives considered margin erosion to be more costly than other types of supply chain risk events, with 54 percent of respondents citing it as one of their top two issues. This may be because margin erosion is a relatively high-profile, easy-to-measure problem, and executives are thus well aware of it. ” It’s even personal, since it often affects their own compensation.
Compounding the bottom line impacts of supply chain risks are the growth of risk events themselves. “Such disruptions are not only more frequent, they are also having a larger impact. Fifty three percent of executives said that these events have become more costly over the last three years, including 13 percent who said they had become much more costly. Studies have found that natural disasters are occurring more frequently, and the economic impact of each event is usually greater than before. For example, five of the 10 most expensive natural disasters have taken place just within the past four years.”
With all of the above cited concerns, let’s go back to the matter of proactive risk aversion and whether or not the concerns are a call to action for these executives. 71% of the executives claim that supply chain risk is an important factor in their companies’ strategic decision making, and 63% say that their company has a risk management program focused specifically on the supply chain. But there are obstacles, and there seems to be a gap between concern and action. A tool that Deloitte says may help avert supply chain risks is predictive modeling. A surprising survey result is that only 36% of the executives use this technology. By investing in this and other technology, companies go beyond traditional understanding of risk to building resiliency against risk, and safeguarding against the dangers of margin erosion and physical product flow disruption. The bottom line.
Our clients have recognized the importance of technology to identify, address, and manage their risks across their value chains. They need to bring causal factors in to the forecast to reflect macroenvironmental pressures on the supply chain. They want to minimize their investment by having a tool that can be designed to their processes, not vice versa. They are interested in a best-of-breed tool that provides the best demand forecasting available to minimize their risk.
As pointed out in our video, in life, if you know there are risks, you avoid them. Why wouldn’t you do the same in your business?