If nearly half of senior executives believe their supply chain risk management programs are insufficient or ineffective, why isn’t more being done to change this? Dave Blanchard of Industry Week argues that in many supply chain cases, risk management itself may be its own source of risk. It may be another case of false security. Simply having a risk management plan in effect makes people feel safe whether or not that plan is directly beneficial to them or not. Blanchard notes that supply chain risk will often fall into one of four basic categories:
- Macro-environment risks
- Extended value chain risks
- Internal operational risks
- Functional support risks
Blanchard notes that macro-environment risks a natural disaster disrupts a company’s supply chain. Extended value chain risks come from Tier 1 and Tier 2 suppliers. Internal operational risks occur in multiple levels at once. Functional support risks refer to an issue in support areas. Blanchard points out that senior management is indeed aware of these reoccurring risks: In fact, these potential risks have caught the attention of senior management, as 71% of the respondents say that supply chain risk management is an important factor in their strategic decision-making, and nearly that many (64%) say they have a supply chain risk management program in place. Why then do nearly half (45%) say they lack confidence in these programs, and why do only 13% say their companies are extremely effective at risk management? The top two reasons are: lack of acceptable cross-functional collaboration (32%), and cost of implementing risk management strategies (26%). The silo mentality at many companies also plays a part, since risk management programs tend to be organized around silos, which can impede visibility and collaboration—the very qualities supply chain management depends on. Blanchard notes that, according to a Deloitte survey, there may be a way to avoid supply chain risk pitfalls. The recommendation is to build stronger extended value chain relationships. Business continuity and risk contingency plans are also recommended. Remember not to get too comfortable with your supply chain risk management plan. If it is causing you risk instead of dealing with risk, it is time to reevaluate.