Companies tend to have well-established plans for coping with cataclysmic events, but they may be woefully unprepared for the smaller day-to-day bumps.
Big events such as hurricanes, tornados, tsunamis, and terrorist attacks can stay top of mind because of the long-lasting impact they can have on the high-tech distribution and services supply chain. However, these types of events are not that likely to occur. They are outlier events.
“Outlier events have much more influence than they should,” Professor Ananth Raman of Harvard Business School told David Stauffer for an article for the school’s website. M. Eric Johnson, director of the Center for Digital Strategies at Dartmouth College's Tuck School of Business, told Stauffer for the same article, “Managers will often consider the giant risk but ignore the smaller risks that create friction in the supply chain.” It is critical that your company put in place strategies that focus on the everyday events. Dealing with them in a piecemeal fashion is inefficient and ineffective and can significantly hurt your company.
Deloitte recently surveyed 600 global executives about their supply chain risk management. Forty-five percent of the respondents said their programs were somewhat effective of not effective at all. Respondents — especially those in the technology, industrial products, and diversified manufacturing sectors — reported that supply chain disruptions have become more costly over the past three years. They also cited margin erosion and sudden demand change as two of the most costly problems.
Sixty-four percent of the global executives said they had a risk management program that is specific to the supply chain.
What makes an effective program? The strategies you employ to cope with everyday risks need to be robust and monitored closely. It is important that you put a leader in charge. Furthermore, it is important that the system include well-defined processes to mitigate events such as cashflow contingencies, client credit risk and default, competitor interruptions, inventory risk, data backup and recovery, key client attrition, employee satisfaction and retention, social media use and abuse, and reputation recovery.
It is also important to be nimble and flexible. Being intractable can exacerbate issues. One area that is often overlooked is human resources. Don't be afraid to move employees into new roles. Moving an employee into a new role permanently (or for a specified period to deal with an event) is a powerful and effective strategy.
Finally, be first. If there is a problem, be sure that the clients hear about the problem from you. When you contact clients, tell them what the issue is and what you are doing to address it. Be clear, concise, and honest.
A big event might happen, but everyday events will happen… every day. Don't give your company Chicken Little syndrome by focusing only on big events.