Risk Management – A Strategic Management Task (Part 3)
riskmethods welcomes a guest post from Dr. Hugo Eckseler, procurement and supply chain management consultant and former Executive Vice President at Deutsche Post DHL.
Parts 1 and 2 provided a description of the supply chain risks that occur within the context of globalization and of the key principles of a sustainable risk management strategy. Part 3 deals with the issue as to how a strategy such as this can best be implemented on an operational level.
One of the most important reasons many companies today still do not really concentrate much on supply chain risk management is a lack of time and resources. There is no doubt that comprehensive collection and analysis of risk data requires enormous effort. Purchasing agents and supply chain managers generally have more than enough to do in terms of dealing with their daily operations, tenders and cost-cutting projects; risk management quickly becomes a burdensome ancillary task performed “once a year” in a strategy meeting, only to then focus on “important” tasks again. This is dangerous for the company, as can be seen in numerous recent examples.
The bad news is that the effort required for systematic monitoring and analysis of supply chain risks is not reducing, but rather, is increasing due to the ever-growing networking of global supply relationships.
The good news is that modern software solutions based on the Internet and social media are available today, and that these solutions enable handling of “big data” and significantly reduce the effort required for determining, filtering and analyzing risk data on the part of purchasing agents. An important factor is to take note of some essential requirements when selecting a tool.
1-n tier supply chain monitoring
Critical risks are not limited to first-tier suppliers. Risks that could threaten the entire supply chain can also lurk in tiers below this.
Inclusion of internal and external risk data
Professional risk management must take into account company-specific risk data (e.g. stoppage/substitution options for critical production materials) as well as external factors (e.g. regular local flooding). Accordingly, a risk manager expects appropriate software to provide an option for drilling down to all relevant details, but also to allow for consolidation of individual risks in relation to overall risks related to suppliers, supply chains or locations. This presupposes uniform scaling of risk data.
Continuous updating of risk data / early-warning indicators
The sooner information on potential threats such as natural disasters or strikes is available, the greater the chance of introducing targeted measures for preventing risks or limiting the damage. Only a few years ago, the concept of continuously updating data required for this purpose seemed impossible, yet today this has become a reality, thanks to online interfaces to large insurance databases and other providers, and web research services.
The risk manager must ensure that he is not overrun by a flood of data, but rather that the software tool specifically points out relevant hot spots on the basis of early-warning indicators and alarm thresholds, which can be individually defined.
Implementation times, scalability
Modern SaaS solutions are ready for operation in no time at all and can provide substantial support for risk management after only a few weeks. They must also be able to be adapted to new requirements flexibly and fast, namely when new business areas, company departments, supply chains or risk areas are to be included.
Software tools are only used in the long term if the user “enjoys the keyboard”. A prerequisite for this is an intuitive user interface that offers professional support in terms of data analysis and report creating, and also when it comes to implementing the measures agreed as part of risk management.
Ideally, subsequent implementation of risk management measures on an operational level and the appropriate software solution should already be considered when determining the risk management strategy so as to ensure effective and efficient structuring of the risk management processes, as well as integration into daily operations in Procurement and other departments right from the start.