Ability to Anticipate and Manage Risk – Chapter 11 – Textbook
This chapter turns our attention to a supply chain excellence trait that is rapidly emerging in importance—ability to anticipate, evaluate, and react to unexpected disruptions to the supply chain. Otherwise referred to as, supply chain risk management. “Environments of rapid change and ever-enlarging global supply chains make risk management an essential ingredient for success today” (Poirier, Quinn, & Swink, 2009, p. 206). “Unfortunately, effective risk management capabilities are currently found only among a small cadre of leading firms. Going forward, though, risk management must become a core capability of any supply chain organization that hopes to succeed. Leaders understand risk” (Poirier, Quinn, & Swink, 2009, p. 206). It is very important to know how to be prepared for what is expected and what is unexpected, as both will make it necessary to have contingency plans in place, when needed. “Others give lip service to risk management. Their “plan” is to wait for a disruption to happen and then rely on heroic efforts to overcome the situation—whatever the cost. In short, they assume a completely reactive posture” (Poirier, Quinn, & Swink, 2009, p. 206).
Within the supply chain management field, managing risk is becoming an increasingly important issue for some companies it will be the difference between survival and failure as their supply chains get further extended and they rely increasingly on partners in different geographical areas and cultures (Poirier, Quinn, & Swink, 2009). The professionals that work within the supply chain field are advised to anticipate the consequences of these developments and prepare their organizations with specific risk management strategies and implementation plans (Poirier, Quinn, & Swink, 2009). As Poirier, Quinn, & Swink (2009) have discussed in this chapter, “firms can effectively use existing data to anticipate disruptions and to quantify the potential costs. Above all, the emphasis must be on being proactive and preparing for the highest priority risks with a contingency plan that can be executed quickly and effectively. This chapter has highlighted the urgency of the risk situation and the critical need to start working on those traits that the leaders have cultivated” (p. 219). Despite the pitfalls and the difficulty of stepping up to such a formidable global challenge, risk management is one of those competencies that must be developed—and sooner rather than later! (Poirier, Quinn, & Swink, 2009. p. 219)
Supply Chain Risk Management – Risk in the evolving supply chain process
When looking at risk management for a manager’s point of view, there are 3 objectives that are key to an effective supply chain risk management strategy:
• identifying and prioritizing critical business elements
• mapping the entire supply chain to show interdependencies
• identifying potential failure points along the supply chain (Schneider, 2008).
With using the traditional risk management tools, risk managers examine the various supply chain components — procurement, manufacturing, real estate, and logistics, legal and warehousing — and work to identify and evaluate the potential consequences of risk (Schneider, 2008). We know these actions play an important role with the total comprehensive risk management process, they need to ensure they are engaged by the senior level management as well as the functional supply chain managers so from top down all are fully vested in the risk management plan (Schneider, 2008). This will allow risk managers to ensure they are fully engaged, at the same time, create a multi-tiered operational risk management process. “These risk managers can monitor the process exposures by risk-scoring various owned, supplier, or customer geographic locations for natural catastrophe loss potential or using sophisticated modeling techniques to improve risk-adjusted decision making. Furthermore, risk managers will have the ability to use such quantifiable risks associated with the supply chain to enhance risk-based scenario planning and analysis” (Schneider, 2008, n. p.).
According to Schneider (2008) ‘the ultimate goal of an effective and comprehensive supply chain risk management strategy is to embed risk awareness into all the core elements of the organization, from the C-suite through supervisors and department heads across the various supply chain functions. Ideally, this goal can be accomplished through the construction of a formal, cross-functional supply chain risk management team that offers a full “cash-to-cash” view of the supply chain’s internal and external constituents” (n. p.). Without having a comprehensive risk management plan in place, there are many potential risks you are exposing your company too. These potential risks can bring your company to a sudden and quick halt, which no one wants to have happen.
Globally Optimized Operations