Tuesday, February 5, 2013
How to predict risk and operate agile
After reading the first week’s material, I found that how to manage the risk is a permanent and important topic in the supply chain management. One of the trends that affect supply chain management mentioned in the article “Your Next Supply Chain” is the increase in the level of risk that many companies are exposed to, such as catastrophic disasters, changeable cost of raw material and labor.
From the article “Stress Test for Global Supply Chain”, we learned that the global supply chain is as complex as the human body. Some tiny tears can cause someone to suffer terrible failures. For example, the earthquake in Japan in 2011 was a test for the global supply chain, as Japan is the world's third largest economy and largest importer of semiconductor and other electronic devices. Companies have to deal with all kinds of threats and emergencies in their supply chains and equip with high resilience.
Then how a company deals with volatility and uncertainty is critical in the highly competitive market. I found an article on the risk in the supply chain from McKinsey Quarterly, “Agile operations for volatile times”. https://www.mckinseyquarterly.com/Agile_operations_for_volatile_times_2968
This article introduces three companies that are seeking methods of agile operation and solutions for increased uncertainty. The first example is a pharmaceutical company faced the operational challenges that shortfall from upstream causing downstream production delays which threatened to its profits and reputation. Then the senior leader tried to find the problem first, and then to mitigate risks in the sources of supply chain. To pinpoint the problem, they listed a set of high-priority products, and then catalogued the risks related to those products. Then they assessed the impact of those risks into numerical score and summarize the following chart:
After this research, the leaders of company learn their most vulnerable part lies in relying on particular manufacturing plant. The company leader also established a team for supply chain to track risks. Through these measures, the pharma company lowers the risk and avoids catastrophe it may face.
Another example is that an automaker’s model of demand predicting is not good enough in a more volatile macroeconomic condition. To adjust to a volatile condition and what’s more important, to get the proper demand, their team simulated a model including 15,000 scenarios with Monte Carlo simulation to generate the probability distribution of demand. When creating the model, the company considered four factors which are believed matters most: growth in key markets, unpredictable regulation, regionalized scenarios in mature markets, and the volatility in new markets. By doing this, the company can respond more quickly to the changeable demand and increase the operational flexibility.
The third example is that a global medical-device manufacture tried to keep its traditional products prestigious position and attempt more flexible production approaches. The leaders of the company estimate that the new approaches have lower the capital cost for their products compared with their traditional methods. On the aspect of human resource, they require the product developers and operation staffs acquiring both technical skills and the ability to identify uncertainties. This company is a good example to focus on the ability to preempt, detect and deal with risks.
The three methods above is the way to assess sense and respond to potential risks. The faster you can deal with the risks, the more advantages you will have than competitors.
After reading this article, I found that in these three examples, company leaders should first sense and identify the potential risks. My concern is that it's maybe a little easier for those who are very familiar and experienced in their industries and areas. But it's still quite difficult to foresee and predict the risks, such as the threats from new technologies and novel ideas.