7 Factors that drive supply chain risk management decisions

With the theme from this week focusing on supply chain challenges in a global environment, I found a report from the MIT supply chain and innovation department evaluating different supply chain and risk management strategies from 209 corporations with a global footprint.  As organizations expand into global settings they are subject to new risks that can disrupt their operations; controllable risks such as price fluctuation of raw materials, market changes on fuel price and currency fluctuations, and less controllable risks such as natural disasters, demand changes, disruptive innovations and strikes.  With proper planning, however, these volatile risks can be better managed; shown by Dell in being aware of a potential dock workers strike and mitigating the risk before it occurred, and by Nissan, who overcame supply chain challenges in the form of earthquake, tsunami and nuclear disaster, all of which occurred in March of 2011, to turn a 9% increase in production compared to a 9% drop in production across the industry at that time. 

Nissan was able to accomplish this supply chain marvel by adhering to their risk management principles consisting of: identifying risks as early as possible, constantly analyzing the risks and updating proposed solutions, and rapidly implementing countermeasures as soon as possible when necessary.  Nissan was prepared for these events by having a readiness plan that encompassed natural disasters such as earthquakes, and regularly updated this plan before the disasters occurred.   With this document in place, management personal in key areas and responsibilities had the information necessary to implement actionable solutions, and were empowered to make decisions locally without lengthy analyses.  Additionally, Nissan has a flexible supply chain model, with strong central control points, but decentralized components that are independent enough to implement solutions on their own.  Finally, there was good visibility across the entire enterprise, and good coordination between internal and external business units.  This transparency and communication enabled Nissan to share information globally, and update their strategies on the fly.

Developing strong supply chain and risk management frameworks are particularly important in today’s high speed global corporate environments, and can be accomplished by focusing on 7 factors highlighted in the report:

1.  Risk governance
2. Flexibility and redundancy in product, network and process architectures
3. Alignment between partners in the supply chain
4. Upstream and downstream supply chain integration
5. Alignment between internal business functions
6. Complexity management/rationalization
7. Data, models and analytics

MIT’s report also shows that most global corporations feel that dependencies between supply chain entities have increased, supply chain changes occur more frequently, new products are introduced more frequently and products have become less standard.  To additionally reduce risk associated with natural disasters, the report suggests creating and implementing business continuity plans, implementing dual sourcing strategies, and using both regional and global supply strategies. 

Which of the 7 factors do you think are the most important in developing a successful supply chain management strategy?  Will these factors work for small corporations as well as large, or can only maturely developed supply chain networks implement some of these strategies and solutions? 

http://supplychain.mit.edu/events/Forum-PwC-Report

http://www.cgma.org/magazine/news/pages/20138558.aspx