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Changing World Requires Risk Management Focus

This article is part of EDN and EE Times' Hot Technologies: Looking ahead to 2015 feature, where our editors examine some of the hot trends and technologies in 2014 that promise to shape technology news in 2015 and beyond.

Risk isn't a new topic in the supply chain, but it's one that is moving up the priority list for many electronics companies, as a global reach becomes a reality. Changing weather conditions, evolving labor disputes, and shifts in economic growth all make the risk picture change over time — requiring keen attention and careful planning.

“Risk comes at us in many ways,” said Bindiya Vakil, CEO of Resilinc, a supply chain monitoring vendor, during a panel discussion at the recent Hi-Tech & Electronics Supply Chain Summit. “A lot of companies struggle with the business justification. How do we build the business case around it? We are all so ROI driven.”

(Source: Accenture Global Operations Megatrends Study)

(Source: Accenture Global Operations Megatrends Study)

Too often, organizations wait until an industry-crippling event occurs to really dig into the question of risk management. “There's nothing better or worse than a disruption,” said Lee Wolfe, supply chain transformation at NetApp, pointing to the floods in Thailand of several years ago that gave his company a laser focus on risk. “All of the hard drive manufacturers are in the valley area there. That disruption almost killed the storage industry.”

For NetApp, the devastation yielded a robust risk management program, as well as an effort to incorporate resiliency and policies around the use of sole sources into its practices. “It was a real eye-opener. After the disruption, the C-level directors realized we needed to look at it,” said Wolfe, adding that the same events raised customer awareness. “Customers started asking us how resilient our supply chain was. Now, it's table stakes. You have to be resilient.”

By tying incidents back to a real-world revenue impact, supply chain managers can further enforce the importance of proactive risk management to corporate leadership. “If you struggle with illustrating risk management ROI, do an assessment of what it would cost to get past an incident,” advised Nghi Luu, senior manager supply chain risk management at Cisco during the panel. “Tie it back to revenue by figuring out how long the organization might be down and what daily revenue will be lost. It will catch their attention.”

NetApp uses a similar approach. “We use the acronym Time to Recover (TtR) and run scenarios of what happens if a site goes down completely, as well as how tertiary sites are impacted,” said Wolfe. “We use that heavily. If a factory were to be impacted, we calculate what we need to go out to buy it elsewhere and that's built into our sourcing strategy so we know how much stock to keep.”

Strong leadership support is critical to risk management success. “It always starts with the leadership and works when there is executive champion in company,” said Vakil. “Efforts need to be more proactive to be recognized.”

This leadership allows risk management to trickle down through the organizational structure and also ensures that efforts to adopt appropriate tools are supported. Accenture, in its Global Operations Megatrends Study, outlines five activities that embed risk management into the corporate culture once strong leadership is in place:

  • Formalize risk management as a specific topic for discussion in relevant management meetings
  • Install a risk management officer as part of the senior-level organization hierarchy
  • Establish and propagate a “culture of risk management” throughout the supply chain organization
  • Develop and nurture supply chain risk management skills as part of employees' standard job descriptions
  • Build and deploy the analytical tools that will help the organization respond to risks

As more electronics OEMs get on board with proactive risk management through technology tools and a commitment to best practices, supply chain management will inevitably shift. “Proactive risk management mitigates risk to performance,” said Vakil. “We need to move to managing the supply chain with information rather than inventory.” Welcome to the new world of risk management.

Read more of EDN and EE Times' Hot Technologies: Looking ahead to 2015:

1 comment on “Changing World Requires Risk Management Focus

  1. Daniel
    December 3, 2014

    Hailey, the report shows that IT is a big risk in supply chain, isn't it? I thought, if we are properly using IT at various level, the all such concerns can be addressed properly.

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