Almost daily, we hear of some problem in the supply chain. A few weeks ago, a container ship got stuck in the Suez Canal and hundreds of ships were backed up with no place to go. As well, original equipment manufacturers in Europe missed critical parts because of their Just in Time delivery practices.
Recently, a US pipeline company was hacked and a ransom was demanded. The US pipeline shut down and prices for gas went up. The US pipeline company reportedly paid $5 million to the hackers so they it could retrieve operational controls and data.
There are a number of definitions of supply chain risk management including:
“Supply chain risk management is the implementation of strategies to manage both every day and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity.” (Source: “A Critical Review on Supply Chain Risk – Definition, Measure and Modeling”)
In this piece, we’re going to look at supply chain risk management from a number of perspectives:
- Sourcing supply management
- Manufacture OEM
- Supply chain management
Let’s look at each one:
Political tension is rising in many countries of the world political. Tension is increasing between countries and inside countries. There are new political threats, political rules, and new expectations as we come out of Covid. For example, China and Australia are talking about trade war. China and many countries have discussions on fair and equal trade. All of these issues are disrupting trade.
Economic risks are also increasing, which increase global trade and supply chain risk. Countries want to create jobs because their populations are restless due to high unemployment. Countries want to reduce their trade deficits with China. For example, we would’ve said that US and China trade differences were negotiable. Both sides were talking, positioning, posturing, and even negotiating in good faith. Now, trade and sourcing seem to have been weaponized. And of course, companies sourcing to China have to change your business and sourcing model with China.
Sourcing risks are also increasing. Sourcing risks may include many unexpected events such as counterfeit products, curtailed shipments, poor manufacturing quality, transportation risks, and cyber security risks. These are uncharted territory for companies and require new sourcing business models and rules.
Manufacturers, also called original equipment manufacturers, face many supply management risks. For example, manufacturers may lose intellectual property, lose control of how they design products, face poor quality manufacturing products, face just in time delivery risks, and many other types of risk. All of these are largely uncontrolled resulting in loss of revenue.
Today’s purchasing and supply chain management professionals are faced with new supply management rules, threats, risks, requirements, and product specifications. Purchasing and supply managers are not prepared to manage many of the above risks. Supply management professionals today have not been trained in supply chain risk management. Today supply management professionals need new training in supply chain risk management, knowledge, skills and abilities.
Our mantra the last couple of years is that all management now is risk management. And a extension, is supply management and purchasing management are all about supply chain risk management.
Greg Hutchins coined the expression: Future of Quality; Risk(R). He is also the founder of:
He can be reached at: GregH@800Compete.com or 503.233.1012