Holistic risk management: How it can improve supply chain performance

Risk assessment is now one of the central components of effective supply chain management. Companies that focus extensively on procurement and logistics need to understand how various environmental, political and economic risks have and will affect their supply chains. This is one of many reasons why companies are investing in Lean supply management practices.

The trend is also inciting executives to consider a more holistic approach to supply chain management. Many analysts argue that risk managers are focusing too narrowly on individual concerns while failing to take into account global or industry-wide threats.

“In today’s hyper-connected supply chain environment, risks are evolving at a dizzying pace and can strike from almost any direction, including those that are new and unexpected,” Deloitte consultants Kelly Marchese, Siva Paramasivam and Michael Held wrote for IndustryWeek. They point to four key risk categories that managers need to focus on: macro-environmental, extended value chain, operational and functional.

A holistic approach to supply chain management needs to focus, for one, on macro-environmental risks. These are the external forces that impact a business and its supply chain. This is particularly important in regards to a globalizing marketplace, which increases supply chain complexity. It also magnifies the impact of disruptions that in the past may have been isolated.

There are also extended value chain risks, which relate to a company’s upstream and downstream supply chain partners.

“Increased use of outsourcing, for example, may have improved efficiency and has allowed businesses to focus more attention on their core competencies,” they added. “But it has also made their operations more complex and exposed them to increased third-party risk.”

Operational risks refer to a company’s internal manufacturing and distribution operations. Lean manufacturing, capacity rationalization and just-in-time inventory have the power to boost supply chain efficiency while also increasing agility and responsiveness. Once again, managers need to be sure that their operational strategies do not scale back the company’s operational focus and involvement.

Learn more about how this can effect the entire operational flow, and how you can gain a superior understanding of Lean throughout the Supply Chain here.

Finally, companies need to consider their functional risks, which refer to the functions that support supply chain activities, such as finance, HR, legal and IT. Today’s supply chains are largely enabled and advanced by a broad array of applications and systems, and any disruption to those processes has the power to traverse the supply network and taint the customer experience.