Why Supply Chain Risk Management is Increasingly Important
By Paul Homchick-Oracle on Jul 14, 2014
It used to be that supply chain risk factors were mostly physical. Your supplier might have a fire, there might be an earthquake, an important shipment might get lost. But supply chain managers now need to deal with a wider array of possible disruptions to their supply chain.
Two recent news articles highlight the increased risks. As the world has become evermore interconnected, and as information expands and moves at the speed of light onto our desktops, social issues can be just as important as traditional supply chain issues. Intel recently announced that they had rid their supply chain of minerals from Congo sold by militias accused of human rights abuses. And Samsung suspended operations with a Chinese supplier who has been accused of employing under-age labor. Today, when threats to your supply chain may arrive via an act of God, or appear in an exploding flurry of Twitter messages, it is important to plan for disruption, and to have the tools in place to develop low cost strategies for dealing with disruption.
The starting point for managing supply chain risk is to design a supply chain that has alternative ways of operating when disrupted. This is more complex than just identifying alternate suppliers and planning for contract manufacturing. A modern supply chain is extraordinarily complex with thousands of trade offs. To approach this problem, you need to build a model of your supply chain that includes capacities, costs and revenues. A Gartner report on how CISCO manages risk noted "Transparency is critical to both internal and external support for supply chain resiliency. Objective metrics contribute to transparency." In other words, supply chain risk scenario analysis should be sufficiently robust to model a good number of alternatives, to know what is feasible and what is infeasible, and to be able to present metrics on the cost to "de-risk" the possible disruptions.
An excellent tool for performing these analyses is a network optimizing program. Oracle® Strategic Network Optimization enables you to model and evaluate the impact of potential unplanned events, understand their impact, determine the most cost effective mitigation strategies, and formulate contingency plans. It would also be an extremely useful strategic tool when a disruption occurs, as it uses optimization technology to find the lowest cost reconfiguration of your network to continue operations. Oracle also has developed supply chain analytics tools to help determine the impact on orders when a disruption occurs and thus to give managers more information while formulating responses. Those that are interested can read more about the Advanced Planning Command Center Supply Chain Risk Management Dashboard here.