July 15, 2014

Building a World Class Supply Chain Risk Management Program

Bindiya Vakil

For many companies, building a supply chain risk management program is stymied by the lack of a unifying framework, methodology and toolkit.  I will outline what characterizes a world class program and how to go about making supply chain resiliency a reality for your organization.

The five basic tenets for a successful resiliency management program are as follows:
  1. Executive sponsorship, top down focus and funding for resiliency management
  2. Metrics tied to rewards to ensure adequate focus and resource commitment
  3. Embed resiliency into the organization's culture using an analytics + tool + process approach
  4. Focus on resilient product design through "risk optimized" component, supplier and manufacturing choices
  5. Robust crisis preparedness efforts to ensure "first on the scene" and coordinated response

This is the end vision where policies, tools, processes, people, analytics and metrics are all in alignment.  This is a multi-year ongoing commitment to resiliency management.  The idea is that information and intelligence is available in the right forums to the right people to make resiliency-optimized choices.  For example, supplier resiliency scores are available to product design teams choosing suppliers on a new product.  Component revenue impact and resiliency score is available to a test team deciding between testing a second source vs. a new product.

Metrics and Tools

Analytics and metrics help to quantify resiliency and measure progress.  Simple analytics that bring different streams of resiliency data together into a single actionable scorecard can facilitate comparison.  These metrics can be made meaningful by associating progress with rewards and compensation.  Tools to manage these metrics can facilitate accuracy, uniformity and ease of use.  In order to operationalize resiliency, people have to adopt metrics.  If manual effort is needed to gather data and calculate scores, this is sure to lose interest.  Tools that bring together important dimensions of resiliency, cost, etc. are viewed positively and have a better shot at adoption.

Processes and Controls
Embedding these metrics into processes ensures that the discipline of weighing resiliency considerations is followed.  Exception processes should be put in place for certain key elements.  For example, a product design engineer wishing to design in a financially weak supplier into a new product would have to get approval from a superior – this creates oversight and ensures that different considerations are properly weighed.  This also sets the stage for informed risk mitigation if the decision is to go forward with the weak supplier due to cost or technology considerations.  Contract language, higher inventory levels, capacity options or second sourcing efforts can be implemented right away to mitigate the risk of a future bankruptcy.
Executive sponsorship and Goals

Resiliency thinking starts at the top - executive alignment and buy in is crucial.  Goal setting should account for resiliency constraints.  For example, a company with manufacturing in China should carefully set inventory turns targets.  Strategic inventory buffers which protect against unforeseen events and demand supply mismatch should not be dismantled to meet turns targets.  This is possible with executive sponsorship for resiliency.  Additionally, a top down focus ensures that there is uniformity in how the organization implements resiliency so that a cost driven business unit does not always outperform a resiliency driven business unit on short term deliverables.  Funding is critical for appropriate tools to be adopted, mitigation strategies implemented and recovery efforts tested.

“First on the scene” with Crisis Management Excellence
With all these efforts in place, however, the perfect storm will form eventually.  Therefore, it is important to simultaneously have real time intelligence to monitor global events and anticipate possible impact as quickly as possible.  The company that is “first on the scene” has valuable early mover advantage in securing available capacity and supply.  Best in class crisis preparation exercises involve identifying and training people about “who does what”, “who says what” internally and externally with customers and the media.  The streamlined flow of information between the supplier and customer minimizes chaos, reduces misinformation and allows faster decision making.  Clearly defined and tested engagement models help to ensure that the supplier knows how to communicate effectively with all the right people at the customer.

As I have shown, a world class resiliency program comprises a robust proactive and reactive engine that helps avoid disruptions, and mount a coordinated response if a disruption does occur.  Having established a clear picture of the end state, we now can begin to outline the first steps to get started on this path.  My next few blog posts will be about the foundational activities that can build a strong information centric environment for resiliency.

This is the second post from Bindiya Vakil, Resilinc's CEO and Founder. She is a recognized thought leader in the area of supply chain risk management, and has been a practitioner in higtech supply chain Bindiya Vakil, CEO and Founder of Resilincmanagement with companies including Flextronics, Cisco, and Broadcom. She holds a master's degree in supply chain management from MIT and an MBA in finance. Ms. Vakil's concept of "Design for Resiliency" is being widely adopted as a best practice in the industry. She was named a Top Female Supply Chain Executive in 2013 by Supply and Demand Chain Executive.


You can read her first blog post here, as well as listen to her speak in our upcoming webcast on conflict minerals compliance this Thursday, July 24th, 2014, at 2:00 PM ET.

Topics: supply chain resiliency, supply chain risk mitigation, supply chain risk management, supply chain resiliency management