Pearson on Excellence: Supply chain risk management and the keys to high ROI
In a very real sense, supply chain management is about managing risk: anticipating, avoiding, and minimizing supply chain upheavals caused by weather events, political havoc, technology problems, economic turmoil, market changes, currency swings, supply shortages and labor strife, to name but a few.
Unfortunately, these challenges are becoming more common. In fact, various indices show that volatility—the result of tumultuous political, environmental, technological, and financial events—is double that of any point in the past 30 years.
But how adept are companies at supply chain risk management? Do their risk-minimization initiatives pay them back, in part or in full? Is there one specific approach that enjoys a higher than average chance of success? In net, how relevant—and rewarding—is
supply chain risk management?
To find out, Accenture surveyed more than 1,000 senior executives, more than half of whom hold C-level titles such as chief supply chain officer, chief procurement officer, and chief operating officer. Roughly 50 percent of respondents’ companies have annual revenue of $5 billion or more.
Respondents told us that information technology and global economic turmoil are the most common and impactful drivers of supply chain risk. And they cited quality management, supply chain planning, and talent and skills optimization as the supply chain areas most vulnerable to risk.
Virtually every respondent reported that their supply chain risk management investments have generated a positive ROI. But perhaps most notably, the research revealed a small group of leaders that cited supply chain risk management ROIs in excess of 100 percent. Here are three behaviors associated with the leaders.
1. Make operations risk management a top priority. Sixty-one percent of the leaders (compared to 37 percent of others) consider supply chain risk management a strategic imperative. Armed with this perspective, leaders are likely to:
Formalize risk management as a specific topic for discussion in management meetings.
Install a risk management officer as part of the company’s senior hierarchy.
Establish and propagate a culture of risk management throughout the supply chain organization.
Develop and nurture supply chain risk management skills as part of employees’ job descriptions.
- Deploy analytical tools that help the organization manage risk.
2. Centralize the risk management function. Centralized risk management, in our view, can be a significant advantage because it helps companies plan and react to risks in a coordinated and efficient manner. Compared to the survey population as a whole, leaders are far more likely to have a centralized risk management function that is led by a senior executive who oversees all risk management activities.
This doesn’t mean that centralization is the only way to go, even though it speaks to the importance of establishing corporate-level guidelines for risk management and developing a consistent, enterprise-wide approach. Once a corporate risk management philosophy and methodology have been defined, a company could opt to design individual, more-local approaches that reflect the organization’s unique supply chain structure and risk profile.
3. Make smart and significant risk-management investments. Leaders were nearly three times as likely as other respondents to cite plans for boosting supply chain risk management investment by 20 percent or more within two years. And it’s pretty clear that some of the most important investments companies can make are those that enhance visibility.
Innovations like supply chain control towers and demand forecasting factories improve an organization’s ability to collect and analyze data from across the supply chain, thus making it easier to see disruptions coming, plan more effectively, and respond more readily and appropriately.
These insights are consistent with findings from another Accenture research effort that revealed that companies perceived as leaders in managing volatility and risk often master these four capabilities:
Capture data across the supply chain and develop actionable insights from it.
Build adaptable structures to respond to changes.
Develop innovative products and services with flexible approaches.
- Respond flexibly and quickly to last-minute changes.
Risk is a significant—even ubiquitous—concern, which is why most any company should consider a formal, individualized approach to risk identification, avoidance, minimization, and remediation.
At a minimum, that means defining an overall, corporate-level strategy and then determining the degree to which execution should be centralized or decentralized. Regardless of what approach is taken, visibility will be vital. Organizations can’t see the future, but they can learn to view each of the supply chain’s components and activities in something close to real time.
Factor in the ability to anticipate problems and prepare for the unexpected, and you have the rudiments of a high-ROI supply chain risk management program.
