Managing Supply Chain Risk: What Drives Risk?

Managing supply chain risk is hardly a new focus for global manufacturing companies. This issue can largely be explained by macro-economic trends like globalization. But, given the recent prevalence of high-impact, adverse events and natural disasters that occurred last year, this topic is now front and center for many manufacturers.

Two major factors are significantly impacting risk in today’s supply chain: increasing supply chain complexity and decreasing access to information. The challenge to effectively manage supply chain risk has therefore escalated, making it even tougher to address.

Increasing Complexity
Supply chain complexity is increasing in many ways. Companies are outsourcing more and more aspects of their business to globally distributed Supplier networks. Examples include manufacturing operations, product design and logistics. At the same time, products that are being produced continue to increase in manufacturing and design complexity. The large numbers of geographic markets where products are now being sold continues to increase, necessitating that an increasing volume of regulations must now also be complied with.

Lack of Data
As companies continue to expand globally, if the proper communication and collaboration systems aren’t implemented, decisions will be forced – regardless of whether all the right information is available. Unfortunately, when you have a lack of data, it directly correlates to an increase in risk. When organizations don’t have the right information to make an informed decision, a higher level of risk exists that an undesirable outcome will occur.

So, what does this all mean when something goes wrong or there is an adverse event?

It means that because of globalization, there is an increased likelihood that companies will be exposed to and impacted by adverse events, such as natural disasters, political and economic instability, supply disruptions, economic volatility and more. It also means that these events will be harder to deal with, and that there will be more risk of a negative consequence as a result of these events.

In a more traditional operating environment, when more of a company’s operations are under its own control, there are fewer moving parts. And, there is more ready access to information. In this type of scenario, it is much easier to identify, quantify, prioritize and mitigate risk for better decision making. Conversely, when there are more parties involved and less information, it is much harder to identify, quantify, prioritize and mitigate risk for better decision making.

With this new global manufacturing operating environment in mind, the value of supply chain visibility has increased significantly, offering substantial ways to help minimize risk of loss, order delays or reduced quality. How viable is your supply chain visibility? Is this a topic of discussion that you have had with your Chief Risk Officer or Chief Financial Officer? Should you?

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