Risky Business: Companies Skimping on Supply Chain Risk Management Risk Disaster

Undeniably, retail can be risky business. Potential for supply chain disruptions lurks around every corner. Supply chain risk management allows retailers to anticipate upheaval and rapidly recover from turmoil. Although retailers recognize the importance of supply chain risk management, many admit their organization remains unprepared. Risk needs to become engrained in the decision-making process to incorporate the strategic benefits of supply chain risk management into supply chain best practices.

The Risks Get Riskier

Natural and man-made risks are increasing as supply chains become more complex.
Potential disruptions include:
Coming up short: Supply shortages impact inventory and start a ripple effect of interruption.
Bottlenecks: Transportation suffers from capacity constraints and decreased productivity due to overfilled ports. Mega-container ships can contribute to mega delays.
Over-protection: Trade protectionism jacks up costs and decreases supply.
Keeping current: Currency rate fluctuation can get you coming and going, increasing costs and limiting demand.
High Risk High Tech: IT service failures or security breaches along any part of the supply chain can impact the whole.

Regardless of the cause of the risk, the results are the same. “Supply chain disruptions … devastate corporate performance,” concluded the 2005 study, “The Effect of Supply Chain Disruptions on Long-term Shareholder Value, Profitability, and Share Price Volatility.”

Even when companies know the risks many are ill-prepared. “Most companies recognize the importance of supply chain risk management, yet many of them are doing very little or nothing to improve their capabilities in this area,” explain Adrian Gonzalez and Mike Glodziak, co-authors of the free eBook, “Keeping Up with the Retail Consumer: The 6 Fundamental Supply Chain Disciplines that Retail Leaders of Tomorrow Must Master.”

To remedy the vulnerability, risk needs to become ingrained in the decision-making process.
Start every discussion of supply chain strategy by asking, “What are the risks?”

“Volatility and uncertainty are not going away anytime soon,” notes Steve Culp in Forbes. Culp identifies an additional cause besides circumstance in increased supply chain susceptibility. “The fragility of global supply chains is related to emerging risks but is also related to supply and network design strategies,” he explains. Due to a disproportionate focus on cost, “the extended supply chain now has many additional points of extended failure.”

Just as the aspects of the supply chain — from warehousing and transportation to logistics and inventory — all rely on one another, the disciplines of supply chain management best practices are also interrelated, explains Adrian Gonzalez, president of Adelante SCM, co-author of “Keeping Up with the Retail Consumer.”

“The six disciplines all complement each other, all build off each other in some way,” he notes. For example, supply chain visibility “ties into risk management; if you don’t have full visibility, you won’t have be able to take proactive action.”

So how can retailers take proactive action? Start by assessing your supply chain and identify areas of improvement with this free Supply Chain Performance Grader.