Supply Chain Risk Management

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3

Building the Risk

Management Foundation

Achieving excellence in any area does not happen because a company sim-

ply announces its desire to be excellent. Many organizations have been

frustrated because they lack the ability to develop the kinds of supply chain

approaches and techniques that create a dierential advantage. ese

organizations fail to recognize the importance of mastering something we

call the “enablers,” four distinct areas that support more advanced supply

chain and risk management initiatives.

is chapter highlights a set of enablers that are essential for eective risk

management. ese enablers include a supportive organizational design;

information technology systems that provide real- time or near real- time

access to data and information; risk- related measures and measurement

systems that provide insight into potential risks as well as the eective-

ness of risk management eorts; and the availability of capable human

resources. is chapter also discusses how to integrate risk management

with supply chain strategy development. We conclude with a case that

describes how one organization relied on these four enablers, as well as a

centrally led approach to strategy development, to manage strategic risk.

SUPPLY CHAIN RISK MANAGEMENT ENABLERS

As mentioned, what separates companies that achieve real advantage

from their risk management eorts is a commitment to the four enablers

of supply chain excellence. While we could commit entire chapters to each

enabler, the following provides an overview that should help the reader

46 • Supply Chain Risk Management: An Emerging Discipline

understand what we are trying to present. If 50 books are written next

year addressing risk management, the probability that any of them com-

mits any space to these four enablers presented here is slim. And, in our

opinion, that is a serious mistake.

A Supportive Organizational Design

Perhaps one of the most underappreciated parts of corporate success is

the role that organizational design plays. e Corporate Executive Board

has concluded that to be successful, executives must rst consider how

their organizational design can lead to sustainable improvements in per-

formance and operational excellence. Organizational design refers to the

process of assessing and selecting the structure and formal system of com-

munication, division of labor, coordination, control, authority, and respon-

sibility required to achieve organizational goals.

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An organization’s design,

including the varied features put in place to support that design, is much

more than what an organizational chart can ever depict. Because this topic

does not appear elsewhere in the book, it will receive the most attention of

the four enablers.

In our experience, supply chain risk management (SCRM) is rarely

established as a distinct function within a company, although many

organizations have a “point person” who has responsibility for risk man-

agement. One conclusion that we (as well as others) have reached is that

businesses have not yet agreed upon any typical way to integrate SCRM

into their decision- making processes.

2

e challenge is not about creating

an organizational design that is dedicated to risk management, something

that is unlikely to happen at most organizations. Rather, the challenge is

to take various design features, many of which are already in place, and

incorporate risk management responsibilities. e following illustrates a

variety of design features that are ideal for including risk management as

part of their scope.

S&OP Processes. Sales and operations planning is an internal, cross-

functional process, usually supported by teams, whose primary output is

a 6- to 18-month production schedule for product categories and families.

e objective of S&OP is to develop an output plan that minimizes total

costs given a specic demand plan. is process is an ideal way to bring

the demand and supply sides of a value chain together, something that

in itself has positive risk implications. Given that cost minimization is a

major objective of any S&OP process, nance will play a major role in