And, of course, there are those risks that no insurance would be able to mitigate. Insurance can help reduce total loss, it cannot recoup all losses. Goodwill is one of those intangible elements that a supply chain disaster insurance policy would likely not cover and this often has tangible financial implications if it results, for example, in business lost because a vendor or customer declines to continue the relationship.
Jennifer, Well stated. The risks highlighted in the article and the ones you pointed to are in the normal course of doing business but how companies approach these issues is even more important than the problems themselves. As you noted, fear can paralyze. Rather than worry about how "problematic" the challenges posed by outsourcing can be, ofr instance, it would seem to make more sense to figure out how to mitigate them and prioritize the response. I also believe that all players in a company's supply chain and the extended partnerships should be involved in these activities.
@Cryptoman You explain the point very well. The setup in physics reminds me of the setup in teaching the forces of economics. It starts on the assumption of ceteris paribus-- that everything else remains the same -- a situation that is never possible in the real worlds.
@Ariella I agree. The key point here is how accurate can it all be calculated? This depends on how P and I are calculated and more importantly the assumptions made in their calculations.
In physics, for example, one of the most popular assumption statement goes like: "Let's assume that we are in a vacuum..." The truth is we are not living in a vacuum and therefore the results are often irrelevant in the real world although the analysis may be impressive and clever.
As Albert Einstein said:"Everything should be as simple as possible but not simpler". What I mean is VAR = P x I looks simple enough but is it too simple?
@cryptoman I was wondering the same thing. I imagine that it takes quite a bit of data and number crunching just to come up with a fairly accurate probability.
These are real challegnes and the VAR measure is not easy. However the SCC council and its members have done a great deal to move this forward. Often probabilities and impacts are considered/calculated using a myriad of external information in addition to an organization's own data. This is NOT an easy measure that is for sure - but ignoring the need to do it is also not acceptable ;-)
@elctrnx_lyf Insurance has most certainly found its way into Supply Chain. It becomes increasingly necessary particularly with the financial fragility of some suppliers and customers from AP/AR perspective!
@Barbara - you are exactly correct. The VAR measure was in fact "borrowed" from the financial community and leveraged for use in SC Risk Management and the decisions of whether or not to mitigate must be ROI based. An organization simply cannot mitigate all risks or we will go broke! ;-)
Jennifer--good points. The key word is scalable, and it does seem to me that companies have to prioritize which "nodes" of the supply chain are most critical, or which products.
Mike--thanks. This is interesting. It has only been a recent development that supply chain risk is being addressed from the insurance (third party) standpoint. I'm not saying it didn't exist, but most risk management was covered by contracts between suppliers, distrbutors and customers. Finance has its own type of "insurance." Now, the supply chain has to expand beyond contracts into third-parties.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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