Everything Has a Cost

EBN Editor-in-Chief Brian Fuller recently asked me about the biggest risk for companies in the global supply chain. Given the category "biggest risk," you might expect that contenders would include natural disasters, global conflict, labor unrest, and demand uncertainty. Instead I answered that companies created the greatest risk for themselves when they did not engage in robust risk assessment -- essentially saying that not having such an assessment in place was tantamount to not planning.

We all know that it's more intuitive to link costs to what's being done -- purchasing equipment or hiring staff -- than to put a price tag on what's not being done. Like everything else though, not planning has its costs. For example, a risk assessment plan that is less vigorous than it should be might overlook training employees on regulatory compliance.

The lack of training could bring an organization into noncompliance with such requirements as the Foreign Corrupt Practices Act (FCPA), the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the International Traffic in Arms Regulations (ITAR) and may result in substantial penalties, the loss of business, or worse.

Those penalties represent tangible costs. However, there are also costs that are not so tangible but are none the less real, such as the cost of rebuilding a solid reputation in your market space.

On the flip side, when robust risk assessment is practiced, the gains are not limited to the immediate and tangible but extend to the intangible, as well. For instance, maintaining high service levels and customer satisfaction may result from having previously identified a supply interruption risk and taking actions to mitigate that risk, performing better than your competitors and gaining more marketshare as a result.

Is it possible for a blanket of protection to be created by having a risk mitigation strategy for each and every node on your global supply chain? Probably not, but if you start by looking closely at the most vulnerable parts of your supply chain, you have begun to put an assessment plan into place. Keep in mind that establishing your plan is the beginning, not the end of the process, but it is a necessary precursor to developing mitigation plans and establishing an overall business continuity approach.

Having a risk assessment plan presents you with choices: Should you find a way to alleviate or mitigate the risk, or should you live with it? All of us who participate in the global supply chain face these questions. None have simple answers. What is helpful to us and to our supply chain partners, however, is that, with risk assessment planning, we gain the opportunity to weigh costs vs. risk.

Without such planning, the costs are still there, but our power to evaluate them in a way that promotes the interests of all supply chain stakeholders may not be.