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Keep Your Eye on the Ball

Have you ever watched a baseball game and seen three outfielders converge on a high fly ball, only to stand idly by while the ball falls to the ground between them? Too often, the electronics supply chain’s approach to risk management mirrors this scenario. Everybody knows something needs to be done, but in the end, they assume someone else is going to make the play.

Today, however, the stakes are too high and the risks are too prevalent to leave anything to chance. To meaningfully mitigate supply chain risks, each and every player — from raw materials supplier through end product manufacturing — must actively manage the vulnerabilities that are inherent in their particular portion of the ecosystem. A failure to do so could turn a relatively minor disruption into a major crisis.

This is an aspect of risk management that I believe many players within the supply chain do not fully grasp. The potential damage a supply chain disruption can cause is not always repaired by simply smoothing over some customer service complaints. There can be a tangible — and very costly — impact on a company’s overall valuation, including lower revenue, higher costs, and shareholder value loss.

Research from the DuPree College of Management at the Georgia Institute of Technology shows that the total shareholder value loss associated with a supply chain disruption can be as high as 25 percent, regardless of who or what has caused the glitch.

Yet, according to a Supply Chain Council member survey, less than half of enterprises have established metrics and procedures for assessing and managing supply risks. Furthermore, these organizations lack sufficient market intelligence, processes, and information systems to effectively predict and mitigate these risks. Without this data, these companies are putting their supply chains at risk without even realizing it.

While there is no one-size-fits-all supply chain risk management strategy, one element that I believe every risk management plan should include is assessment. An assessment tool such as the Supply Chain Operations Reference (SCOR) model provides a comprehensive set of metrics covering all levels of the supply chain. This latest version of the original SCOR model enables users to benchmark their supply chain metrics against similar companies in their industry.

Using this information, they can determine where to focus their risk management emphasis based on their relative performance versus their peer set and whether they are managing their supply chain based on cost versus reliability, responsiveness, or agility. They can then determine whether it is more important to be superior, have an advantage, or be at parity, and then reprioritize their investments to achieve the status they desire.

Managing supply chain risk proactively is rapidly becoming a competitive differentiator in our industry. Using the SCOR model as a foundation for your risk management program will help ensure that you will be ready to catch whatever life throws at you.

6 comments on “Keep Your Eye on the Ball

  1. Barbara Jorgensen
    February 7, 2011

    I've always found the concept of risk management to be a hard one to grasp, but once you understand how to identify and quantify risk, it seems imperative to act. Ultimately, a company should rely on itself and its own data in risk-management scenarios. It's great to trust your partners, but the electronics supply chain is so complex that the missed fly ball scenario seems all too likely.

  2. Jay_Bond
    February 7, 2011

    After reading this article, it still amazes me that so many companies throughout the supply chain seem to neglect risk management. What they fail to realize is that they are a vital piece of a puzzle. If they create a break in the chain they mess with the whole big picture and not just themselves. By thinking that they can have customer service straighten things out, they don't realize that they also might have messed with the companies before and after them in the supply chain. By taking a little time to strategize and think ahead, many supply chain issues could be eliminated.

  3. Eldredge
    February 8, 2011

    Yes, I think anyone in industry has seen this happen over and over. In the workplace, we need to do the equivalent of “calling the ball” – decide who is in the best position to make the play, and clearly assign the task.

  4. Gerry Fay
    February 8, 2011

    Thanks for the comments so far. If anyone is interested in getting help doing a SC risk assessment of your company we can help. At Avnet Velocity, we are thought leaders in this space and can help you raise awareness in your own companies.

  5. elctrnx_lyf
    February 8, 2011

    Rsik management is a very complex task considering the huge number of suppliers, customers and service providers involved in delivering the product. But with a right set of people, good number of manufacturing locations and right logistics the risk can be mitigated. But all the companies should vision the future and have both short term and long terms plans to counter the risk.

  6. Gerry Fay
    February 8, 2011

    Excellent points all! I hope the blog creates some awareness to the topic.

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