Natural disasters aren't the only risks in town

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The past few years have brought risk due to natural disasters to the front of supply chain consciousness. Severe storms, killer tornadoes, devastating earthquakes and tsunamis, forest fires, and drought.  All cause for concern, all are risks that supply chain professionals should have mitigation plans in place to address.  But risks can take other forms, and these risks can be just as devastating to a company’s bottom line. A post by “the doctor” over on the Sourcing innovation blog, led me to this article in Industry Week. In it, they present a short case study about how a company survived the chaos and upheaval of Hurricane Katrina, only to fall victim to other risks:

  • Rapid growth – Rapid growth sounds like a great situation to be in, and it can be. But it can also cause significant problems. Companies have growing pains just like people do and processes that worked before can become problematic with higher volumes. Suppliers might not be able to grow at the same pace you are and qualified people might not be available to meet hiring demand.
  • Expanded and new facilities – New facilities are really systems wrapped in a building and like any system there can be problems getting things working.  As you bring new facilities on-line or as you renovate and expand existing facilities, you need to plan for potential start-up issues.
  • Increased and changing product range – Things can be simple when we have one or two products but as the product offering grows, complexity grows with it. Care must be taken when adding new products not to kill demand for existing products, at least until supply has been whittled away.  Apple is a master at this - when a new product is coming, even before it is announced, supply starts to dry up for existing products so that as Apple transitions to the new product, they reduce the risk that they will be left with large quantities of the outgoing product.
  • New, large (and more demanding) customers – New customers are wonderful. Large customers, even better! But… there can be a downside. Maybe others have noticed this little truism - the larger the customer, the more demanding the customer. They want what they want, when they want it. And because this customer now makes up a healthy portion of a company’s revenues, the incentive is there to make sure these customers are satisfied.  The risk is that if you have successfully ramped the company to meet this demand and the customer subsequently leaves, you are left with significant excess capacity and expense.
  • Changes to the supplier base – Suppliers come and go.  As the supplier base changes, so does the performance characteristics of your supply base.  Quality, on-time delivery performance, lead times, costs, all impact profitability.
  • Changes to IT systems – This can be a killer.  IT systems are often the brains of the operation.  If the brains aren’t working, not a lot of stuff can get done.  Companies are often lured into huge projects to overhaul and replace their systems.  If done right, the change can be quite beneficial.  If done incorrectly, the results can be disastrous, sometimes leading to litigation.

The Industry Week article has a number of suggestions for improving a company’s ability to assess and mitigate risks of all kinds. If you were to pick one that you absolutely must implement, it would be to build risk management into all aspects of your business.  Make risk assessment and mitigation a key part of your decision making process.  A good place to start would be to add risk assessment and mitigation to your monthly S&OP process. What better place to ensure that all teams are thinking in terms of what risks exist and how best to manage them? Have you experienced some of these risks? How did you overcome them? Comment back and let us know.

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