Managing Risk To Avoid Supply Chain Breakdown

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Unfortunately, there is no silver bullet strategy for protecting organizational supply chains.Instead, managers need to know which mitigation strategy works best against a given risk. Systems risks and Intellectual Property Risks are not included here.

perhaps the biggest challenge companies face is mitigating supply chain risks without eroding profits. The manager’s role here is similar to that of a stock portfolio manager: Achieve the highest possible profits for varying levels of risks and do so efficiently. In practice this entails either (A) moving to a higher level of efficiency by reducing risk while increasing rewards, or (B) remaining at the current level of efficiency by accepting reduced risk and reduced rewards.

Exploring “what-if” scenarios like those below can help groups identify, understand and prioritize risks, a key prerequisite to tailoring effective risk mitigation strategies.

The application of three key risk/reward relationships in the supply chain ( see “Balancing Supply Chain Risk/Reward Relationships”) suggests four general strategic approaches, depending upon the relative level of risk and the cost of mitigating it.

Once a company clearly understands its supply chain risk, it can select the appropriate general mitigation approach and specific tailored strategy.

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Managing Risk To Avoid Supply Chain Breakdown - Presentation Transcript

Managing Risk to Avoid Supply Chain Breakdown
Source: Sunil Chopra (Kellog) & ManMohanSodhi(Cass)
Disruptions
Delays
Systems
Forecast
Intellectual Property
Procurement
Receivables
Inventory
Capacity
2
Supply Chain Risks
3
Supply Chain Risks & Their Drivers(1/4)
4
Supply Chain Risks & Their Drivers(2/4)
5
Supply Chain Risks & Their Drivers(3/4)
6
Supply Chain Risks & Their Drivers (4/4)
7
Assessing the Impact of Various Mitigation Strategies
8
Choosing Supply Chain Risk/ Reward Trade-Offs
9
Stress Testing Your Supply Chain
10
Balancing Supply Chain Risk/Reward Relationships
11
Rules of Thumb for Tailored Risk Management
12
Tailoring Reserves for Risk Mitigation
13
What Managers Should Do