By solely focusing on the risks or the bottom line of supply chain risk mitigation, businesses may be missing out on opportunities.
GSCS’ director of business development J.B. Dagley highlighted the issue in a recent Business 2 Community article,‘Bringing Balance to Supply Chain Risk Mitigation’.
“Supply chain risk analysis should take into account both the positive and the negative aspects of risk,” he wrote.
Naturally the possibility of supplier breakdowns or failure, natural disasters or sabotage means organisations prefer to take the pessimistic view of risk management.
However, increased efficiency and globalisation offer a number of opportunities to increase productivity and profitability.
Therefore a balanced view of the risks and rewards is needed when making decisions.
For example: when choosing suppliers, he suggested companies focused less on the cost or distance and more on the opportunities.
He gave the example of choosing between a supplier in North Africa or China. Although Africa was closer, China’s business economy and culture was a better fit for the company.
He advised putting a realistic, cost-effective plan in place. This should account for the probability of a risk occurring, the impact if it does and how much it would cost to fix.
He suggested the following process:
Forget the unimportant risks, i.e. although you may rely on a single trucking company, if there is a breakdown then there are plenty to take its place.
Identify the common and important risks, and find ways to mitigate these.
“A key aspect is to maintain a holistic view of the supply chain as well as assessing individual supply chain nodes,” he wrote.
His key takeaway - start using software.
He wrote that businesses are now able to build top-down models of risks and risk-relationships through software applications, and use these models to stimulate different situations and outcomes.
“These models also allow companies to assess the importance of different risks and to refine the model to include only those risks that are relevant.”
The full article is available here