Risk reduction requires knowledge of hidden issues

PUBLISHED : Saturday, 20 September, 2008, 12:00am
UPDATED : Saturday, 20 September, 2008, 12:00am

Companies must take a proactive approach to manage supply chain risks and minimise negative effects. They should also realise that anything from delayed production to late delivery, or excess inventory, has a direct impact on sales, reputation and the bottom line.

According to Anthony Lucas, partner for advisory services at PricewaterhouseCoopers (PwC), 'getting it right' is a matter of focusing on three core elements - people, process and tools - and not letting up.

'Many of the big multinationals and retailers are not putting enough emphasis on training,' he said. 'It may be an evolving process and in its infancy, but it is still critical for them [and something they should be grappling with].'

He suggests it is first necessary to define roles and responsibilities, while making the company culture open to change and new methods. The next step is to identify potential risks as exhaustively as possible before devising appropriate responses and then taking corrective or preventive action. Finally, it is vital to develop the tools and techniques to collect data, communicate well, and monitor internal and third-party activities.

Mr Lucas emphasises that reducing supply chain risk often comes down to having a sixth sense.

'You need to know the hidden issues and for that you must have experience,' he said. 'There is no easy way around it.'

As part of PwC's study of supply chain risks in the Asia-Pacific, the firm recommended several best practices which multinationals and smaller organisations should consider implementing. These were to:

Segment suppliers in overall importance and designate them as either strategic or transactional.

Establish a clear and agreed process to assess the financial strength and general viability of all suppliers.

Put in place workable contingency plans to obviate possible production problems with individual suppliers or any kind of transport disruption. At present only about 30 per cent of the surveyed companies appeared to take such steps.

Ensure visibility, traceability and assigned responsibilities at each stage of the supply chain, using certified processes where possible.

When instigating audit requirements, don't overlook your suppliers' suppliers and the knock-on impact of their practices or those of other sub-contractors.

Be ready to measure, analyse and understand the relationship between different risk elements and where they interconnect.

Depending on the size of the organisation, consider setting up regional procurement hubs.

Make training a key requirement and arrange regular visits and staff secondments to major suppliers.

Design a framework or 'dashboard' to manage risk, policies, procedures and controls.

Use IT wherever appropriate to support, streamline and monitor the full risk management process.