Five ways to more effectively manage supply-chain risk
Top executives the world over spend a lot of time and effort to manage delays or disruptions in their companies’ supply chains – with widely varying results.
A global poll of more than 1,000 senior executives by consulting firm Accenture found that managing operational risks related to the supply chain was important or very important to 76% of respondents.
But results of the efforts differed as widely as the approaches, which included monitoring risks, defining capabilities to fill potential gaps, and building excess capacity.
Nearly three-fourths of the companies represented in the Accenture survey reported returns on investment on their risk management efforts of 50% or less. Twenty-one per cent of participants reported a 51% to 100% return on investment and 7% had a return on investment of more than 100%.
The many approaches respond to a flurry of risk drivers that threaten multiple supply-chain areas. Topping the list: information technology that provides fragmented or insufficient data and lacks agility to allow companies to respond to market changes.
IT, cost factors, and the global economy, which survey participants named as the top three supply-chain risk drivers, most likely affected quality, planning, talent, and sourcing and procurement.
“Volatility and risk is all around and, if not properly addressed, can pose a major threat to the stability and viability of virtually any business,” according to the survey results. To identify the best approach to managing the risks, a company should first define its risk management strategy and then determine how to best execute it.
Survey participants with the highest returns had three things in common: They made supply-chain risk management a priority. They centralised responsibility for the risk management function. And they invested aggressively in key operations risk management capabilities.
Companies are willing to invest more in managing operations and supply-chain risks. More than half of the polled executives said they plan to boost investment by up to 20%, and one-quarter of respondents expected to increase spending by 20% or more.
Based on the responses from the companies with the most effective risk management, Accenture suggested companies take the following actions to boost return on investment:
- Formalise risk management as a specific topic for discussion in relevant management meetings.
- Install a risk management officer as part of the senior-level organisation hierarchy.
- Establish and propagate a culture of risk management throughout the supply-chain organisation.
- Develop and nurture supply-chain risk management skills as part of employees’ standard job descriptions.
- Build and deploy the analytical tools that will help the organisation respond to risks.
Related CGMA Magazine content:
“How to Make Your Supply Chain Hum”: Companies that sell into and source from markets worldwide compete on their supply-chain capabilities. Find out what supply-chain leaders do to boost their revenue and earnings.
“Seven Key Factors Short-Circuit Supply-Chain Risks”: Six Nissan production facilities and 50 of its critical suppliers suffered damage in Japan’s 2011 earthquake and tsunami. But Nissan ended 2011 with a 9.3% increase in production. Find out how, and learn about factors that can help companies minimise the impact of supply chain disruptions.
“Digital Age to Require Greater Supply-Chain Agility”: Supply-chain executives believe digitally enabled customers in the future will be willing to pay for value-added services rather than demanding the lowest prices, according to a recent survey. That may force supply chains to become more agile as complexity is pushed upstream.
—Sabine Vollmer (email@example.com) is a CGMA Magazine senior editor.