18 August 2014 | Mark Pearson
As companies pursue growth in an environment where operations risk is pervasive, and where supply chain risk has become a top priority, a robust risk management capability is key to designing and operating supply chains.
A recent Accenture study of senior executives found that the majority believe supply chain risk management is important or very important. Their focus on mitigating risks in the supply chain is often driven by concerns tied to cost and other pricing factors, IT security and complexity, and the unpredictable global economy.
Most companies receive some return on investment from their risk management. However, we identified a small group of companies which generate impressive returns in excess of 100 percent.
What are these companies – the leaders – doing differently? We found that they have three practices in common:
• Leaders make supply chain risk management a priority. They tend to consider supply chain risk management very important and they recognise the need for greater visibility and predictability across their supply chains. Organisations can take a number of actions to embed operations risk management as a top priority in the company. These include giving risk management a seat among top management and deploying the analytical tools that help the organisation anticipate and respond to risks.
• Leaders centralise responsibility for the risk management function. A significant proportion of the leaders said they have a central risk management function, led by a C-level or vice president-level executive. This enables a company to plan and react to risks in a more coordinated manner. That doesn’t mean a “blanket” approach to supply chain risk management, but a centralised function creates a base level of consistency setting direction for how the enterprise approaches supply chain risk management.
• Leaders invest aggressively in key operations risk management capabilities, with a focus on end-to-end supply chain visibility and analytics. These leaders tend to support their risk management organisation with significant investments in key capabilities. For example, they are nearly three times as likely as other companies to plan to boost their investment in supply chain risk management by 20 per cent or more in the next two years.
Some of the most important risk management capabilities in which companies can invest are those that provide greater visibility into operations. Such capabilities, which include supply chain control towers or demand forecasting factories, enable companies to collect and analyse rich data across the supply chain so they can identify developments that could affect their operations and respond when necessary. One European car manufacturer, for example, recently implemented a cloud-based control tower that provides detailed, end-to-end visibility into intercontinental shipments so the company can avoid being surprised by events that could interrupt the supply of key raw materials.
With risk being such a major concern, companies need to identify the operations risk management approach that is most appropriate to their business. That typically means first defining the overall strategy for managing risk at the corporate level; and then determining the degree to which the company should centralise or decentralise risk management execution based on the structure, risk profile, and business needs.
Regardless of the approach taken, visibility is essential. Companies should consider investing in capabilities that enable them to effectively monitor their supply chain in real time so they can identify potential threats and proactively respond before they become real problems. Those companies that focus on supply chain risk management are positioning themselves to grow more robustly in an increasingly volatile global economy.
☛ Mark Pearson is senior managing director in Accenture Strategy’s operations practice.