Written by: Mike Edmunds
Posted on: 26/04/23
Proactive vs Reactive Risk Management and Resilience – Which is Better?
Risks and vulnerabilities within the supply chain have been forced into the spotlight of many organisations due to the challenges and turbulence we have all borne witness to over the last few years. Many found their unpreparedness exposed the hard way, as COVID-19 created both increased consumer demands and delays throughout their supply chains owing to manufacturing shutdowns and a rapidly deteriorating workforce.
Risks, disasters, and disruptions are a normal and accepted aspect of any supply chain – but the scale and magnitude of disruption as experienced in 2020 was as-yet unforeseen and devastated many businesses who failed to identify the risks and fortify their supply chains accordingly.
The lesson of COVID-19 is clear; risk management and mitigation should be of utmost priority to any business looking to succeed in an increasingly unstable and disruptive world. But it goes beyond merely preparing for the worst-case scenario.
The question really is: how well do you know your suppliers?
Do they align with your codes of conduct, your mission statement, your ESG standards? Are they segmented according to their risk level, and is your time managing them properly accounted for?
There is a growing desire in the industry for supply chains which can demonstrate in real, quantifiable terms that they are robust and have a degree of longevity. This is unsurprising, as supply chains which meet these criteria are often more cost-effective, and place the business into a stronger position with stakeholders and investors when looking to expand and grow.
The process of achieving this status with regard to your own supply chain is often not as straightforward as we all would like. Each step forwards requires painstaking effort and attention to detail to ensure that the data you are providing has been double-checked, and then checked again for accuracy before it can be factored into the decision making process.
Inaccuracy can have a devastating effect to the integrity of any business.
Falling short on any expectations or standards, whether consumer values or industry expectations, has long-lasting damaging effects on the reputation of a business. Being tarnished by allowing standards to slip or failing to effectively evaluate suppliers at any stage of the supply chain is a costly mistake to make, and one that is easily avoided in the modern age of technology and automation:
Not only does embracing the advantages of technology have immediate and palpable benefits to your business, but it can remove some of the worries of risk management by ensuring that data is collected as accurately as possible. Not only this, but automation ensures that this process is done automatically, as often as is necessary to maintain up-to-date records that are audit-friendly and fully reportable.
In a McKinsey article written in 2020, scant few months before the upheaval and commotion of COVID-19, Knut Alicke and Anna Strigel bemoaned the reactive nature of professional supply chains:
“relatively few [companies] invest much time and money in automating any of these activities. When hit by sudden supply-chain disruptions, they build temporary task forces to manage the issue on an ad hoc basis. In some cases, precious time is lost due to insufficient preparedness.” – McKinsey.com.
They likely felt vindicated when a global pandemic caused the largest disruption, not only to supply chain procedure but to society as a whole, in the 21st century.
The Climate Crisis is the next largest threat looming over the horizon. Not quite as immediately impactful as COVID-19, but certainly just as damaging in its potential disruption as the irreversible effects which we are already beginning to see manifest fully. An increasingly unstable climate has led to an increasingly unstable chain of supplies; from farmers struggling to grow coffee as the “bean belt” spanning from Ethiopia to Indonesia suffers from increasingly warmer weather – to coastal flooding in Bangladesh making rice fields impossible to cultivate.
Reactive risk management will not be enough to save the majority of businesses from the disturbance of climate change. Proactive steps taken to sustain and immunise global supply chains is the most effective way of ensuring any kind of longevity as hard and changeable times appear set to continue.
Understanding which suppliers are most at-risk, and the steps you can take to support them and encourage them to implement their own strengthening procedures, is the most important step of utilising proper segmentation to fortify your supply base. In order to simplify this process, you might consider automation as described before.
“In an IBM® Institute for Business Value (IBV) study, top-performing Chief Supply Chain Officers (CSCOs) are now using 95% more digitization and AI automation than their peers, many of whose systems still remain siloed” – IBM.com
Embracing technology is the easiest and most reliable way of ensuring long-term stability and actually increasing the effectiveness of your processes. It is the difference between hours of labour-intensive, detail-oriented data entry and having the confidence in knowing your database is securely updated and shows a comprehensive oversight of your entire supply base. It can also mean the difference between encouraging collaboration across departments and opening up the business to a more positive, holistic outlook, versus struggling to share information and losing accuracy to manual data siloes.
Most offers of technology on the market will introduce some form of automation into your processes, saving you significant amounts of time and reducing your risk margin substantially. Another high value feature any solution worth its salt should offer is the ability to effectively quantify and report on the information you have given it in order for you to make meaningful and considered decisions (and for you to present that irrefutable data to any higher-ups involved in the decision-making process).
By following a clear and shared end-to-end process, embedding risk-management wherever possible, you are sure to succeed in building the resilience of your supply chain.
This is the fourth of a series of thought-pieces I will be running throughout the year. Follow me to stay in the loop and be notified when the next piece is published.