RISK AND PERSPECTIVE

The presence of risk in the supply chain is not new by any means. In fact, there is some degree of uncertainty in everything we do, either personally or professionally. Lately however, there has been an increasing amount of emphasis placed on risk in the supply chain. In the past month I have seen three risk management surveys and study results for two others. It appears according to many, that risk management is the next supply chain mountain to climb. It has been suggested that a number of us are not prepared for the unexpected interruptions or crises that may develop in the discharge of our logistics management responsibilities. One study result declared, and another inferred that if firms had not retained an outside risk assessment expert, they were somehow deficient in the management of their supply chains.

Let’s push back a little and reflect on that. Why the new attention to an issue that is as old as mankind? And are we, as supply chain managers, really that incompetent or unprepared? I don’t think so. Certainly, the subject is important, and I do not intend to minimize it. During the past few years there have been almost unprecedented weather conditions, natural disasters, serious accidents, terrorism, work stoppages, and theft. The recent labor issues at West Coast ports have been a stark reminder of what can go wrong for a firm that relies heavily on ocean shipping.

Some might say that I am out of touch with supply chain reality, but I believe that the good supply chain managers, of whom there are many, are better prepared than they may realize. They don’t view supply chain risk as some new discipline or concept, however. It has been, is, and always will be a part of their responsibilities, as are the minimization and mitigation of the risks. Take for example, food and pharmaceutical manufacturers and distributors. They know where everything they make has been shipped, and when. Recall systems have been developed and can be put into play on short notice. Logistics service providers have been included in these processes and stand ready to participate when necessary.

For any company the risk of transportation disruptions is always present. Several years ago when a national railroad strike appeared imminent, supply chain managers worked out arrangements with motor carriers to fill the service gaps if they arose. All they had to do was agree to use the “reserved” equipment whether there was a strike or not. Expensive? Somewhat, but also a guarantee that plant production and/or customer service  would not suffer.

Most industry watchers believe that before 2015 ends, we will have a serious motor carrier capacity shortage. The intuitive managers already are quietly working out arrangements with preferred carriers to protect themselves against service disruptions. Other plans are in place for the possibility of one or more distribution centers becoming inoperable; and of course, insurance is the primary risk hedge for plants, inventory, equipment and other assets.

The firms with the highest risks and biggest challenges are those that operate globally. Such things as port and transit delays, political and cultural issues, and customs delays present potential risks that domestic shippers do not have. Some firms quickly began using other ports as soon as the first hint of trouble appeared on the West Coast, and while they incurred higher costs and increased times, service

disruptions were minimal. Others are starting to look at re-shoring or near-shoring.

Certainly, there is work to be done, particularly with the international trade, but let’s not make it more difficult than it needs to be. I prefer to believe that a competent supply chain manager, while sometimes stretched to the maximum during times of crisis can anticipate and manage most of the risk possibilities. If I had one rule of thumb to offer it would be do not put all the eggs in one basket, i.e. one port, one distribution center, one or too few truckers, etc. The best method of risk aversion is flexibility.

Written By: Clifford F. Lynch