By: Richard Powell, Crimson & Co
The traditional view of risk is one of mitigation, minimisation and opportunity cost. It is about contingency planning and ‘just in case’ thinking. Few companies look to risk management as a way to steal a march on their competition, but when a medium to long term view of the supply chain is taken, this is entirely possible
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In today’s complex, global supply chains, business risk is everywhere: long transit times from low-cost countries are coupled with ‘just in time’ planning, allowing little scope for slippage; manufacturing sites are rationalised to as small a number as possible to reduce cost and drive economies of scale; suppliers are rationalised to minimise management effort and leverage buying power. Against a background of global brand requirements, currency fluctuations and commodity price volatility, as well as political instability and environmental issues, a lot can go wrong very quickly if the right steps aren’t taken.
A typical example was experienced recently by BMW. Three BMW factories in Germany were closed by the eruption of Eyjafjallajokull volcano as vital electronic parts were not delivered. The stoppages meant that 7,000 fewer vehicles than planned were made during the three day stoppage.
Many businesses look at supply chain risk, but the focus tends to be limited to their suppliers’ financial viability and ability to deal with global catastrophic events. This is missing an opportunity.
A fire at a Philips factory in Albuquerque, USA had very different impacts on two of its customers, Ericsson and Nokia. Ericsson posted losses of $400m directly ($1.7bn indirectly) whereas Nokia overtook them as the No1 mobile company despite using the same factory. The reason was simple: Ericsson used this factory as its single source of supply, whereas Nokia only used it as one of its sources, so it was able to switch production elsewhere.
Taking a comprehensive view of supply chain risk means taking a longer term view, accepting that ‘bad’ things will happen, and making sure your business is in a better position than competitors when it does. Typical benefits include more robust supply chains, improved service levels, better product launches and reduced focus on non-value adding crisis resolution.
15 August 2011
Author: Richard Powell, Crimson & Co
Richard works at Board level to develop and deliver high impact change within time and budget. His typical project examples include business turnaround, supply chain strategy and implementation, cost reduction and performance improvement, all delivering demonstrable business benefit.
Richard Powell, Managing Director of Crimson & Co
Richard Powell, Managing Director of Crimson & Co has Twenty years’ experience of designing, managing and delivering complex supply chain and business turnaround programmes.
