Supply managers can deepen their
understanding about how to identify and
control risks by analyzing such factors as
strategy, performance, supplier relationships
Risks seem to multiply and deepen in the realities of today’s global economy, increasing the complexity of risk assess- ment and analyses. The constant free flow
of information gives business leaders unprecedented access to details about all kinds of potential risks to their businesses and supply chain,
increasing the opportunity for risk mitigation.
By examining six key factors — strategy,
market, supply chain, performance, supplier relationships and demand — we can identify, evaluate
and prioritize risks that are directly controlled or
influenced by supply management.
Before we can look at these factors, we must
acquire knowledge and understanding about the
market and risk. The first rule of supply risk man-
agement is to accept that risk may come from
anywhere. Adhering to this rule can be difficult:
Even accomplished supply management profes-
sionals can be trapped by their own experience
and expertise. We tend to look for risk in the
same areas where we’ve experienced past fail-
ures. While this can be wise, it also may lead us
to miss new areas of risk or to assign resources
to unwarranted areas.
The latter is demonstrated in the case of a
leading chemical manufacturer whose supply
lines were disrupted by Hurricane Katrina in 2005.
Railroad lines and roads were closed, leading to
a shortage of a critical product, which, in turn,
required the unexpected shutdown of a facility.
The event cost the company tens of millions of dollars. The company now keeps the critical product
onsite at an inventory cost of more than US$3 million despite stable usage volumes and no other
By Lane Burkitt