@Risk

Do you have a supply chain risk management process in place?

Unfortunately, most companies don’t.

In a recent survey of financial, procurement and risk executives who participated in Aravo’s supply chain risk webinar series, we found that:

• Even though well more than two-thirds (71.4 percent) of those polled said that their biggest concern continues to be risk of supplier financial viability, more than half have less than 20 percent of their supplier base under active risk management.

J. Paul Dittman, Reuben Slone and John T. Mentzer, the authors of the upcoming book, The New Supply Chain Agenda, The 5 Steps that Drive Real Value, released similar findings last week in their blog post at the Harvard Business Review.

Dittman, Slone and Mentzer say that their data shows that when companies analyze global outsourcing decisions, they fall into three categories. Those who:

1.    add a risk assessment, 10 percent
2.    look at unit cost plus transportation only, 35 percent
3.    include inventory as part of the assessment, 55 percent

Yes, you read that right. A mere 10 percent of companies conduct a risk assessment when outsourcing production. A whopping 90 percent do not.

That has to change. Expanding global supply chains and the unpredictable economy mean it’s more important than ever to start formally managing supplier risk. The costs (to production, sales, reputation) associated with an undisciplined approach are potentially enormous.

As Dittman, Slone and Mentzer point out, the current Toyota recall underscores the role of the supply chain as the lifeblood of the corporation. You need a strategy that identifies, prioritizes, and mitigates risks –in real time –so that your organization remains healthy and best-positioned to handle supply chain challenges as they (inevitably) arise.